Most parents will say that they want to help their children as much as they can and give them every advantage. But what if “every advantage” comes at the expense of the parents’ retirement savings and investments?
Can you afford to press pause?
Some parents who are still supporting adult children rationalise the expense by telling themselves they’re “just pausing” their retirement plan. This is especially common of parents who want to help with a major life transition, like university or collee, a first home, a first car, or a wedding.
However, while your adult child can apply for scholarships, sign a lease, or take out a mortgage, there are no “scholarships” for retirement. If supporting an adult child causes you to slip below your baseline budgetary needs or savings goals, it can be difficult to catch up.
Even smaller expenses add up in the long run. You may think you’re “only” giving your young adult £30 per month as they continue to piggyback on a family mobile phone plan. But if that £30 would have gone into a pension or ISA, you’re not just losing £30 every month – you’re losing out on potential capital gains and compounding interest that can add up to thousands of pounds.
Check their budget.
If you do decide to help an adult child, it’s a good idea to take steps to ensure your helping doesn’t turn into a lifestyle subsidy.
Depending on the nature of your financial support, it might make sense to get a good understanding of your child’s spending patterns. Chances are they don’t have a budget you could look at but ask them what their typical expenses are each month. You have every right to make sure that your child’s financial need isn’t the result of unnecessary creature comforts, lavish holidays, etc.
By getting a sense for their spending, you might be able to help your child find ways to economise, which could help limit your own expenses.
Another way to make sure your child doesn’t remain reliant on you is to set terms. Much like asking to understand your child’s spending, hammering out an agreement strikes some parents as intrusive, or even cruel. But it’s important that you and your child both understand each other’s expectations going forward.
For starters, are you giving your child a gift or a loan?
If it’s a gift, exactly how will the money be used? Are you helping your child solve a problem for good, or will this gift only lead to more problems, and more pressure on your retirement savings? Again, asking for specifics isn’t mean, it’s responsible giving.
If it’s a loan, what are the terms? Are you charging interest? When will your child pay you back? Maybe establishing a monthly payment plan as part of the child’s budget is a good idea.
Don’t be afraid to say no.
Saying no to your children never feels good, not even when they’re grown. But sometimes that’s the best thing you can do as a parent.
If you look at your child’s budget and the intended use of your money and decide a loan or gift is not in your child’s best interest, or could potentially damage your retirement plan, then saying no is an option.
There are more ways to help a child than writing a cheque. Maybe you have a connection who could help your child find a better job. Offer to go with your child to the bank and help with loan applications.
We can be an excellent resource to help your child move towards financial independence and start planning for their own future.
Remember: your child has his or her entire working life to figure out how to balance their budget. But your retirement will be here much sooner than you think. Think long and hard about providing your child with a short-term fix if it’s going to set yourself up for long-term financial stress.