… and should you do it at all?
It’s all well and good being generous, and we all want to help our children out, but while you may feel financially able to do so now, are you really sure that your retirement can afford such generosity?
You may think you are doing the right thing, but if your retirement savings fall short of what you’re going to need, you might actually find that the adult child you are helping now, will be forced to find the money to help you out later on in life.
Before you hand over a lump sum to your struggling grown-up child, you would be wise to consider these questions:
WHAT, SPECIFICALLY, WILL THE MONEY BE USED FOR?
The key point here is SPECIFICALLY.
Discussing money can be difficult for both the adult and the child. It can be embarrassing for children to feel like they don’t have enough, and they may err on the side of caution so as not to cause their parents worry or to hide any serious problems that are occurring.
This is understandable, but it’s also understandable for your child to expect you to want to know whether they need the money because of something beyond their control (job loss, unexpected household maintenance, a broken car, etc.) or whether they just want to go on holiday or buy a new wardrobe.
In the second instance, you might have to be cruel to be kind. Be tactful, but if they think it’s a never-ending tap, there is no incentive to ever start making better financial decisions.
WHAT IS THE REAL COST TO YOU?
You might find you are already helping your adult children more than you realise.
Are you still paying their mobile phone bills? Has their car insurance remained on a multi-car policy? Have you continued paying into their childhood savings accounts beyond the age of 18, or 21? Are they still living in the family home rent-free?
These might seem like low monthly costs to you but consider how these add up over the course of years. If you’re happy to do that then great, but one day they will have to stand on their own two feet fully, and the shock might be greater when they realise they don’t have as much disposable income as they once thought.
It’s a good idea to write everything down on a spreadsheet, even if you are happy to keep paying these smaller costs for them. Seeing how even small expenses can accumulate will be eye-opening for both of you.
WHAT ARE THE TERMS OF THE BAILOUT?
Often, when parents make the decision to bail out their children, they do so without adequate discussion around the terms, or ‘what happens next’. Is the money a gift? If you haven’t explicitly stated that you want it back, then your adult child could be forgiven for thinking this was the case. If you want it back, when? Are you happy to take repayment in instalments or do you need it all at once? Will there be interest charged?
A bank or lender would have terms, so why wouldn’t you?
CAN YOU HELP IN WAYS OTHER THAN FINANCIAL?
Whether it’s right or wrong (we know what we think …) financial literacy in the real world simply isn’t taught in schools. Your child isn’t necessarily being ‘bad with money’ – they simply might not appreciate how much things cost, how taxes work and how far money goes in the real world.
Has your child ever been shown how to budget?
Whether you bail them out or not, this additional help – even if it is met with resistance – is one of the best things you can do to safeguard them in the future.
Can they secure the best deals without your help?
Are there ways you can share your knowledge further? You are more likely to understand about things like car finance, mortgage rates and credit card interest than your child, so help them find the best deals wherever possible and teach them what to look for, and what to avoid, so that they are more capable of making stronger financial decisions on their own in the future.
Do you have any professional connections?
If they are struggling to find work, or have work but are poorly paid, is there anyone you know professionally who could help? A career change or upgrade could be all that’s needed to get them back on track and moving in the right direction.
Finally, feel free to introduce them to us to speak to. We have children ourselves and know how difficult it can be helping them become financially independent. We are always happy to help you and your children worry less and enjoy their life more. If you would like to speak to us, please just ask.
This article does not constitute financial advice and should not be construed as such.