Your adult children likely need money. And you likely want to give them some. The instinct to put your kids’ interests in front of your own is, for a lot of adults, the parental condition: When our babies are hungry, we feed them. When our teenagers are emotional wrecks, we (do our best to) comfort them. And, when our adult children need money for a down payment on a detached semi in an up-and-coming neighbourhood with great public schools and artisanal coffee shops , well, many moms and dads are backing up that dream with their own bank accounts.
According to a recent Merrill Lynch report, 72% of parents are putting their adult children’s interests ahead of their own retirement needs, gifting money for major purchases (down payments and student loans) as well as more day-to-day expenses (childcare, car payments, cell phone bills). Obviously the desire to lend a hand comes from a good place. But is that hand actually helpful for either party?
“I think Boomer parents recognize that it’s a whole different ballgame for their kids,” says Liz Scheick, a Certified Financial Planner at the New School of Finance in Toronto. Sure, parents have been assisting cash-strapped kids for generations, but the Millennial and Gen Z cohorts face a unique set of challenges as the first generations predicted to earn less than their parents. Incomes haven’t changed much in the last twenty years, but living expenses, real estate, and education costs have skyrocketed.
To offset these injustices, U.S. parents are spending $500 billion on their adult children, twice as much as they’re saving for themselves. And in many cases they’re doing it at their own peril. According to the AARP, it takes between $1-1.5 million to retire. Currently, 1/3 of Boomers in or nearing retirement have saved $25K or less.
Helping adult children first can be like “lighting yourself on fire”
“We use the analogy of lighting yourself on fire to keep someone else warm,” says Scheik, who guides clients through intergenerational wealth management on a regular basis. It’s not about hard and fast rules, she says.
“What’s important is that (as a parent) you make decisions with an understanding of the implications.” Just as important is debunking the myth that the whole human ATM act is in anyone’s best interest. Experts are agreed that the greatest financial gift a parent can give is a sense of independence and responsibility. Instead of bailing them out of their next jam, Scheik says parents may want to consider paying for financial planning services.
“The sooner you teach your kid about saving, the better.”