The state of the economy can be tough on anyone, but many young adults are having more difficulties than ever meeting their financial obligations. As a result, we’re seeing a rise in adult children living at home with their parents, while others are seeking Mom and Dad’s financial assistance from afar. Unfortunately, many parents are finding themselves facing debt as a result.
How can parents manage the money pressures of supporting an adult child — and stay financially afloat themselves in the process? Here are a few steps that can be taken to ensure your adult kids don’t drive you into debt.
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More Adult Children Living at Home or Receiving Assistance
There was a time when becoming an adult brought with it certain expectations, including leaving the nest, starting a new life and meeting all financial obligations. While many people are able to accomplish this goal, a growing number of individuals are having a difficult time completing the transition without some help from their parents.
According to The New York Times, 20 percent of Americans in their 20s and early 30s are living with their parents. What’s more, 60 percent of all young adults are the recipients of some sort of financial support from their parents.
This isn’t surprising given the huge amount of debt Generation Y has taken on. The Times reports that almost 45 percent of all 25-year-olds have outstanding loans, averaging about $20,000, while more than half of all recent grads are underemployed or completely without work.
Supporting Your Adult Children Comes With High Costs
When parents ponder the costs they will incur in life, they might include the cost of raising a child, which increases substantially each year, as well as four years of college; but what most parents don’t realize is that they’ll end up spending a portion of their income to continue parenting adult children by handling their mounting expenses.
These extra expenditures are compromising parents’ financial well-being; in many cases, parents are even putting off retirement to continue paying their kids’ expenses. According to a 2013 survey by Ameriprise, 23 percent of Americans between 50 and 70 say their retirement plans have been derailed because they’re supporting adult children.
One reason they’re making the sacrifice is they know, in some cases, it’s not their kid’s fault. But other contributing factors have less to do with finances and more to do with pressure: Some parents feel obligated to help their children due to pressure felt from family members. And possibly the biggest reason parents provide financial assistance is the guilt they feel for their kids’ lack of financial literacy. Many parents believe they missed their opportunity to teach money management skills and now feel it’s too late to start.
Keep reading: How to Have the Money Talk With Your Kids
Unfortunately, this sense of guilt is adding to parents’ distress. With their own financial issues to consider — including shrinking retirement funds and higher health care costs — the debt parents are incurring is rivaling that of their children.
Setting Boundaries with Your Adult Children
While many parents feel obligated to keep helping their kids, even when they don’t have the funds to do so, many experts recommend setting boundaries with your adult children.
Here are some ways to begin doing this:
- Have the awkward money discussion: Rather than shying away from the conversation with your children, ask them questions about how they’re managing their income and what plans they have to become financially independent.
- Offer financial education: It’s never too late to offer your children financial education, even if they’re out of your house. Talk to them about how to budget their money and educate them on ways to limit their expenses. Also, consider teaching them about longer-term savings vehicles, like retirement and emergency funds.
- Point to financial resources: If you don’t feel qualified to offer your own financial assistance, point your kids to other resources, such as the 360 Degrees of Financial Literacy and Smart About Money programs that teach budgeting, debt management and setting financial goals.
- Set boundaries on assistance: If your kids have asked you for financial assistance, don’t provide more unless you’ve seen proof that they’ve used the money as indicated and are taking steps to support themselves in the future. Also, if your child has agreed to repay money, don’t offer more assistance until you’ve received your payment.
- Consider charging interest: An option many parents don’t consider when loaning money is clarifying the terms. Young adults will be more motivated to repay their parents if they’re faced with interest charges and set due dates.
Of course, if your kids are in true need of assistance due to circumstances they have no control over, there is absolutely nothing wrong with doing what you can to help them out.
But if you’re feeling emotionally and financially stressed from the pressure of continuously offering assistance in circumstances when you believe they could help themselves, you might need to follow others who have started letting go of adult children by teaching them the knowledge they need to make it on their own. This could help you avoid enabling your child to remain just that — a child.
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