Why Parents Need To Sort Their Finances For Their Kids

Since the Great Recession of 2008, and more recently, the Covid-19 pandemic, young people have faced massive headwinds that have prevented them from achieving financial independence. Millennials have lower rates of home ownership, lower savings rates, and higher levels of indebtedness than Baby Boomers. According to the U.S. Census Bureau, 54% of millennials lived under their parents' roof in 2018. Parents worry that their children will not have the same opportunities they did. In fact, 79% of parents of millenials report providing financial support to their adult children. Many parents have resolved to save and invest some of their money to help their children. However, this may not be the right course of action. 

You Need an Exit Strategy

The post-2008 era has been devastating for many households and parents, naturally, want to help their children through this difficult period. However, there has to be a clear plan to help your children get financially independent. Simply giving your child money every month, or saving for them, will not address the core problem. 

Furthermore, there's nothing wrong with helping your children, but this assistance can actually make things worse, because the personal nature of the assistance may encourage a lack of accountability. If a child knows they can always go to their parents for help, their incentive to become financially independent is blunted. You need to sit down with your children and establish clear parameters for how you will help them out. Sign a contract with them. This isn't so you can take them to court if they fail to pay, but so that it's clear in black and white what the terms are, and everyone can point to the document to understand what everyone's rights and obligations are. I suggest not calling it a loan, but calling it a "gift" instead, and for you to accept that you may never see that money again. 

You should also ask your children to come up with a realistic plan to get financially independent. In our economy, there are a lot of constraints, but if you;re helping, they need to say, "I need the money so that I can do x, y and z to become financially independent".

You can also keep your children on your health insurance plan until they no longer qualify, or until they can get on their employer's plan. You can also keep your child on the family mobile phone plan. In addition, you can match your child's contributions to their individual retirement account (IRA), to help them save for their retirement through gold investment, and investments in financial assets.

Think About Retirement

That said, you have to think about your own retirement. By extending your financial support to your adult children, you could potentially cripple your retirement plans. That goes for getting loans for your children's education. Many parents take massive loans to send their children to unaffordable universities, and this invariably hurts their retirement plans. Unless your child becomes a millionaire, that is money that you will never see again. 

Many millennials begin to expect help from their children, so you need to be clear that your support is temporary support. This is why you need a written agreement. Hurting your retirement plans won't help anyone: your children won't be able to help you, and you will spend your sunset days financially crippled. 

Finally, you have to put a clock on assistance so that your children get a chance to develop the life skills they need to be successful adults.