By Nino Pavan, J.D., CFP®
As parents, nurturing your children both emotionally and financially ranks among your highest priorities. It’s natural to want to put their needs first, especially in today’s landscape of student loan debt and soaring housing costs. Yet there comes a time when it’s expected that your role will shift, and that your children become financially independent.
The COVID-19 pandemic sparked a challenge with this expectation, with many adult children returning home seeking financial support from their parents. Unfortunately, for 67% of these individuals, the return has become more permanent.
While supporting your adult children is important, it shouldn’t come at the expense of your own retirement plans. Here are four ways to safeguard your financial future without completely cutting off support to your children.
1. Have a Heart-to-Heart
Kids of all ages are used to their parents taking care of their needs, so they may not realize their reliance on you is setting you back. Make sure you and your adult child are on the same page so that there aren’t unrealistic expectations. It might help your child if you are honest about your financial situation. Let them see the big picture so they understand the financial implications of their choices.
This will likely be a difficult conversation, but they’re adults…they can handle it! Be as specific as possible, explaining how your financial support has postponed your retirement date or forced you to dip into your 401(k). If your children are upset, remind them that by pursuing your own financial security, they won’t have the financial burden of supporting you later in life.
But don’t just tell them you’re cutting off financial support; give them the tools they need to succeed on their own.
2. Offer Non-Financial Support
Just because you’re halting the flow of money doesn’t mean you are cutting off all forms of support. You have decades of wisdom and experience that you can pour into them that will help them as they gain independence. Ask how you can be there for them moving forward. Could you help them look for a job? Offer to search for housing within their new budget? Maybe walk them through how to negotiate a raise at their current job? There are many ways to help your child without handing over the checkbook. Make sure they know you’re still there for them.
3. Equip Them With Practical Skills
Living within your means is easier said than done, but by teaching your kids how to budget, you give them a framework to make financial decisions and take ownership of their future. As young adults start their first full-time jobs and adjust to possibly living on their own or taking on more expenses, they need to learn how to look at the numbers and align their lifestyle with their income. This means ignoring society’s incessant messages that they need what everyone else has.
Setting a budget will help them stay on top of their debt, know where their money is going each month, and see how much they are saving. The first rule of financial security is spending less than you earn and saving the difference. If your adult child can master this, they’ll soon be on their way toward financial independence. While the parameters of a budget depend on an individual’s specific situation and goals, you can get your child started by giving them tangible examples of what it costs to manage a household and help them map out how they will divide their money among essential expenses, savings, debt payments, and non-essentials.
And since your adult children likely rely on technology for everything, encourage them to use a budgeting app to track their money and stay on top of their accounts.
4. Set Boundaries
Don’t want to cut your kids off cold turkey? Give them conditions on how long and under what circumstances you’ll continue to support them. They’ll learn nothing if you hand over money without a thought. But if you introduce conditions and set a clear path for getting them where they need to be, they’ll learn to be responsible.
These conditions might include treating the money you give them as a loan. If they need money for rent, create a contract for when they’ll pay you back and what they’ll owe you in interest, if anything. If your child is jobless and needs to move back home, set a time limit to how long they can stay and how they’ll contribute to the household. The bottom line is to make them earn the money you give them so they understand the value of it.
Prioritize Your Retirement
We understand the struggle of watching your adult children deal with their financial challenges, and it’s natural to have doubts about cutting the financial cord. But take solace in knowing that while you may step back financially, you’ll always be there to provide emotional support.
Remember, one of the greatest gifts you can give your children is financial literacy. By empowering them to chart their own course toward financial success, they’ll learn to live within their means, while also safeguarding your retirement savings.
At Financial Designs, we believe it’s never too late to take control of your finances. Whether you’re assessing your progress toward retirement or guiding your child toward financial independence, we’re here to assist. Our approach is holistic and tailored to your specific circumstances, helping you pursue your goals and stay on course.
To explore how we can help support your retirement dreams, reach out to us today by calling (909) 626 1642 or emailing fdc@fdcadvisors.com today!
About Nino
Nino Pavan is President and a CERTIFIED FINANCIAL PLANNER™ professional at Financial Designs, a retirement planning firm in Claremont, California, with the mission of enabling individuals and families to financially prepare for and confidently enjoy their retirement years through goal-centered planning. With more than 30 years in the financial services industry, Nino is thankful for the opportunity to serve his clients by making the retirement process a stress-free one; he worries about their money so they don’t have to!
Nino holds a law degree from the University of Southern California, a Bachelor of Science in Telecommunications Management from DeVry Institute of Technology and has been a contributing advisor to Kiplinger. In addition to being a CERTIFIED FINANCIAL PLANNER™ professional and Investment Advisor Representative, Nino has passed the Series 7, 24, and 63 securities exams and holds life and disability insurance licenses. He also conducts retirement and estate planning workshops for employees of major California companies. Outside of the office, Nino enjoys sports (regular and fantasy), traveling (specifically tropical destinations), walking, pickleball, church activities, and spending time with his wife Sherry and their two children, Derek and Sara. To learn more about Nino, connect with him on LinkedIn.
