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A NEIGHBOR COMPLAINED to me that his car insurance rates soared after a fender bender. I assumed that he or his wife were involved. But it turned out he was referring to his daughter’s accident. Even though she was 27 years old and had a good paying job, he continued to assume financial responsibility for her car. Is this smart parenting—or does it stymie our children’s transformation into well-rounded adults?
When my friends and I graduated college, most of us had to pay our own bills. But it seems today’s timeline for parental responsibility is being extended by huge student debt, high housing costs and disparity in job opportunities, as well as a trend toward greater parental involvement in our adult children’s lives.
Studies show that, when young people are starting out, they report high levels of economic stress, especially those with sizable student loans or who are living in communities with exorbitant housing costs. On top of this, nearly half of today’s young adults reportedly face downward mobility, relative to where their parents stand. Understandably, both parents and their offspring find this hard to accept.
Perhaps parents, as well as their adult children, need to modify their expectations. Indeed, this could be a great chance for young adults to develop self-confidence by working through some difficult economic tradeoffs, such as saving money by opting for a less-than-perfect living arrangement or by forgoing an expensive health club.
One option for parents is more targeted financial assistance, with the goal of helping children launch themselves into the adult world. For example, helping to pay for a smart phone may seem like a luxury, but it’s an essential tool when job hunting.
How much support the parents provide should also vary with the family’s situation. Continuing to pay the bills of adult children can prevent parents from saving for their own retirement. A Bankrate study found that more than half of parents said that assisting their children cut into their own retirement savings. Even if parents can afford to cover living expenses, all this ongoing financial assistance may hamper their children’s development.
How can we best handle all these competing demands? Here are five strategies:
1. Plan. Parents should review their own financial needs. Many people underestimate how much retirement costs. Parents must balance this top priority with their desire to provide family assistance.
2. Discuss. Parents should talk with their adult children about the kids’ finances and plans. Find out what help would be most useful for your 20-something. Provide guidance about budgeting and saving.
3. Target assistance. Offer funds that help young adults gain future independence. Some examples: Assist with housing. Help with college debt. Buy a laptop computer. Pay for health insurance. Buy a car if it’s needed to commute to work.
4. Develop a timeline. Work with your child to decide when to start shifting bill-paying responsibility. Abrupt shifts are difficult to handle for all parties and could come across as a punishment.
5. Provide emotional support. We live in a competitive society. Young adults face numerous financial pressures. Steady reassurance and acceptance by parents can lay a foundation for future resiliency.
Rand Spero is president of Street Smart Financial, a fee-only financial planning firm in Lexington, Massachusetts. His previous articles include Monthly Affliction, Self-Sabotage and Human Factor. Rand has taught personal finance and strategic planning at the Tufts University Osher Institute, Northeastern University’s Graduate School of Management and Massachusetts General Hospital.
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#6. Repeatedly tell your children that society doesn’t owe you…entitlement is a belief that works against rather than for success.
As you transfer responsibility for monthly bills, consider making irregular cash gifts if you can without compromising your ability to retire. For an adult who is newly living away from home and paying her own bills, an unexpected gift of several hundred dollars is wonderful. It lets her enjoy a night out, buy a new outfit, buy steak and flowers for a fancy dinner at home, enjoy a spa day, or make an extra payment on student loan. By paying regular monthly bills, you can make it too easy for a young adult to live above their means. By making occasional unexpected gifts, you provide joy. The important aspect is that the cash gift is totally unexpected, so the young adult doesn’t rely on it.