Budgeting for (and with) Your Adult Children

Almost three out of four (74%) of U.S. adults with children over 18 have helped their adult kids pay living expenses or debts, according to a recent survey. Of those parents, 84% are helping their adult children with living expenses, while 70% are assisting with debt. The living expenses parents are most likely to pay for include cell phone bills, transportation, rent and utilities, and the debts parents help with most often include student loans, car bills, medical debt and credit card bills.

Financially supporting adult children may be the norm these days, but continuing to provide for children long after they’ve reached adulthood can cause financial strain for parents. In the worst-case scenario, parents may neglect saving for retirement in order to help their adult children, and eventually, because the parents will be unable to afford to retire, those adult children will end up needing to support their parents.

Helping grown children can be positive, if it’s handled appropriately and not as a long-term solution. It’s important for parents to implement strategies to help their adult children financially while teaching them strong financial habits, so the children can eventually support themselves without a parent's help.

Why Parents Support Adult Children

The trend toward parents providing financial support long into their children’s adulthoods may reflect a cultural shift—for example, some parents want to see their children enjoy an inheritance now as opposed to after they’re gone.

But for many, the change simply reflects economics. Young people are graduating or leaving college with overwhelming levels of student loan debts: More than 70% of today’s college grads have student loans, and on average, they owe more than $37,000, according to CNBC. Many parents want to help their children repay those debts since they’re launching their careers in the hole.

In addition, many young adults move into cities where rents and other living expenses are rising. And frequently, they end up with jobs paying less than they expected. 54% of 2017 college graduates expected to find first jobs that pay $50,000 or more (and 12% expected their first jobs to pay more than $75,000), but in reality, the average salary for entry-level jobs was about $45,000, according to a study. When the reality of lower paychecks settles in against young adults’ high expectations, many parents help fill the gaps.

How to Help Wisely

If you have a desire to help your adult children financially, and you can afford to do so without negatively affecting your own finances, you have options. However, before you do so, make sure you can truly afford it and that your help is really in the best interest of your adult child.

First, make sure you clearly understand your own financial situation. Sit down (with your financial advisor if necessary) and determine where you are in relation to your financial goals, such as retirement. Determine how much of your income you can spare while still staying on track to meet your own financial obligations. If you don’t have a firm handle on your own assets, debts and income, you could unintentionally give too much to your child and threaten your own retirement or future.

Also, if you’re going to help your adult child financially, you and your child should sit down and openly discuss his or her needs and your willingness to help. Rather than skirting around the issue, be honest about the situation and how much you are willing or able to help.

With this discussion, make sure you set clear expectations and put them in writing. Whether you’re willing to help with a one-time expense such as a down payment for a home, or on an ongoing basis with bills like cell phone or rent, it’s important to let your child know what to expect. Is this something they're going to gradually pay back? Is it a no-strings-attached gift? Put it in writing to ensure you’re both on the same page and review your agreement on an annual basis and make adjustments if needed.

How to Teach Financial Responsibility

While some of your child's financial duress may be outside of their control—stagnant wages, gradual economic recovery, college tuition inflation—they may also lack good financial habits. It's not too late to pass on the financial truths and habits they’ll need to build financially successful lives for themselves.

The easiest way to impart financial knowledge is to simply talk about finances. If you’re helping your adult child with money, that gives you a good opportunity to share financial wisdom on a regular basis. Talk about how you budgeted when you were their age (or if you didn’t, share the consequences you faced), how you budget today, and the lessons you’ve learned along the way.

Secondly, make sure you’re setting an example of strong financial stewardship. If you’re budgeting, saving, investing and working toward financial goals, your adult child may observe those behaviors and learn from them. In addition, your good financial habits make great conversation topics.

Finally, avoid being judgmental. Even if your adult child has made some financial mistakes, he or she is an adult and probably won’t be receptive to your financial wisdom if you present it in a demeaning or judgmental way. Try to avoid making specific comments about their behaviors—items they’ve purchased or investments they’ve made, for instance—and instead focus on sharing general financial knowledge, such as the importance of saving, budgeting and avoiding debt.

Helping your adult children financially can be satisfying to you as a parent, and helpful for your child. Just make sure you have a plan in place and that you're not setting up yourself for financial ruin or your child for ongoing financial dependency.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.