Bailing Out Your Adult Kids Financially

by Beth Blanco, AFC®

We take a look at why continually bailing out your kids is a bad idea both for them and for you. Learning to say no to your kids is difficult, but it will actually help them in the long run.

As I spoke with Nora about her credit card debt, she sheepishly admitted to helping out her kids from time to time. When I asked what ages her children were, she told me they were 26 and 29, with households of their own. Nora’s debt had crept up to $35,000 by the time she reached out for help.  As a financial counselor I hear stories like this all the time.

The week before, Michelle told me about the various rehab stays and other expenses her 24-year-old son’s addiction had cost them, to the tune of over $100,000. They had to refinance the house, take out a second mortgage and currently have 18 open credit cards with balances. I’ve seen parents spend their retirement funds, skip their own bills and take on debt when it comes to helping their adult children.

We want our kids to have it better than we did.

I get that we want to make our children’s lives better than we had it. My co-worker Jon told me his dad said the day he turned eighteen he needed to move out of the house and support himself. He got a full-time job and shortly thereafter met his future wife. They married and started a family.

Things are different now than in our generation. However,  I wonder if we have swung too far in the other direction.

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Subscribe to After 50 Finances, our weekly newsletter dedicated to helping you plan for a comfortable retirement even if haven't saved enough. Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!

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The majority of parents are helping out adult children in some way.

In the 2018 Merrill Lynch “Age Wave Study,” they discovered that 79% of parents are providing some type of support to adult kids. It may not be monthly, but 59% of families are assisting with weddings, 26% have helped purchase a first home and over a third of grandparents are contributing to college funds for their grandchildren. Parents are also helping with health insurance, car expenses, tuition and books, food and cell bills according to the study. The average amount gifted or loaned out to a family member is $6500 per year.

Kids may in deed need assistance with expenses until they begin working, especially during those college years. It’s once they have graduated and secured a full-time job that it becomes problematic. Having to help with rent or a car payment after knowing they purchased the latest iPhone can be irritating to say the least.

Learn to say no, as difficult as it may be.

Learning to say no is difficult but actually helps your kids in the long run. Let’s look at why bailing out your kids is a bad idea:

  • You rob them of figuring out things for themselves. Self-sufficiency and problem solving are much needed skills that will serve them well in all areas of their lives. When you step back, that gives them a chance and permission to think outside the box, to learn to negotiate and work out compromises. Having those difficult conversations with creditors and facing challenges actually makes them grow as people.
  • You are putting your own financial security at risk. People are living longer, an average age of 80+, according to Geoba.se. Retirement funds need to last, especially for unforeseen medical issues. Spending those funds now or creating debt that needs to be repaid in retirement is jeopardizing your own security. Putting your foot down protects your income and assets.

Will Debt Derail Your Retirement?

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You can help your children in other ways.

Encourage your kids to sit down with a financial counselor and look at their budget. Creating a plan for spending, saving and paying off debt is the only way to financial freedom. If you feel compelled to loan money, attach that as a condition. Also, create a repayment plan so they understand you mean business.

Many millennials are dealing with both student loan and credit card debt, and 48% are living paycheck to paycheck, according to the Merrill Lynch “Age Wave Study.”  Connecting them to credit counseling is an excellent way to have a counselor assess their income vs. expenses and provide them with personalized options based on their goals.  If credit card relief is ultimately the goal, a debt management plan could help them reduce interest and payments; however, full balances are paid back so it doesn’t destroy their credit.

Saying no can be stressful, especially when your kids know how to push your buttons and make you feel guilty. Weaning them off your pocketbook and having them rely on themselves will not only save your relationship, but give them tools they need to problem solve in other areas of their lives.

Nora thanked me over and over when I showed her what it would take to get out of debt before retirement. She told me she had a plan and a renewed mindset to be able to tell her kids the Bank of Mom was now closed.

Reviewed June 2019

About the Author

Beth Blanco is an accredited financial counselor with AFCPE, assisting clients with their personal finances for over 14 years. She previously worked at the University of Michigan Credit Union and Habitat for Humanity, providing financial counseling for their clientele. She has a Bachelor of Arts in Business from Siena Heights University. You may find her on Facebook and at https://moneyindsonline.com.

You deserve a comfortable retirement.

Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.

Debt ChecklistSubscribers get The After 50 Finances Pre-Retirement Checklist for FREE!

Your Email:

You deserve a comfortable retirement.

Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.

Debt ChecklistSubscribers get The After 50 Finances Pre-Retirement Checklist for FREE!

Your Email:

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