One of the most difficult challenges for parents is the anxiety surrounding helping their adult children transition to becoming financially independent.

It’s a delicate subject and if you’ve had to deal with this, you already know that you have to walk a fine line between your desire to help them avoid the struggles you went through when you were younger versus helping them learn financial self-sufficiency.

Two Important Outcomes Await You

Whether you choose to help your grown children financially, and to what extent you choose to do so, can have two important outcomes:

It will affect your long-term relationship, and

It may shape the way they handle their finances for the rest of their lives.

For starters, after creating your retirement plan and knowing your numbers, you can confidently clarify how much you can help your children financially.

However, that’s different than suggesting you should help them financially. Each situation is unique, so a single answer won’t suffice.

If you choose to help, here are some things worth considering before you do.

What to Do Before You “Help” Your Kids

To the extent that you can, given that you’re dealing with your children, and potentially your grandchildren, my first recommendation is to remove the emotion from the situation and try to think as rationally as possible.

I recognize how difficult this is given the circumstances. After all, we’re talking about your children and grandchildren. Based on my experience, I know how hard it is to resist going to every length to make things easier for them.

However, I also recognize that good, long-term decisions are based on rational thought, and not spur-of-the-moment emotions. As difficult as it may seem in the moment, try to make these decisions after careful thought.

Questions To Ask Yourself

What is my goal in giving this money to them? What is the most likely outcome once I do?

Do they really need the help, or are there areas in their lives where they could prioritize a little better and free up the necessary money? This is difficult in today’s “I want it now” world. Things that were luxuries years ago, or that didn’t even exist, are now absolute necessities.

Will this financial help make them more independent and self-sufficient, or does it increase the likelihood they will be back for more later?

How will this affect my relationship with my other children?

The most important factors are clear communication and expectations. It’s never easy to engage your children in financial conversations. However, the more explicit you are from the beginning, the more likely you are to get the outcome you’re looking for.

Communicate your reasons for assisting them, your limitations in doing so, and any parameters you may have for giving them money, i.e. expectations for how the money will be used and reporting results back to you, limits on how they use it, and the terms of repayment.

Put the details in a letter if discussing the situation is too difficult. They will appreciate your honesty and that you took the time to give it some thought.

In situations where your children come to you for help, I also recommend they provide full disclosure, which includes laying out their income sources and where it is spent.

Chances are they haven’t done this before and putting everything in writing can be curative. This exercise also forces them to face the reality of the results of their choices.

For example, even though their buddy drives a new BMW, that doesn’t mean they’re entitled to drive one as well, thus leading them to a $680 per month car payment when they only make $500 per week! Likely an extreme example, but you get the point.

In many cases, what used to be a luxury is now perceived as a necessity. Putting everything in writing usually brings the point home quite clearly.

Bottom Line

It’s important to take the time to think about your goals for giving. And reflect on what may happen after doing so.

Are the likely outcomes in line with your goals? If not, something needs to be adjusted or you’re in for a potentially tumultuous long future with your family, and that’s no fun.

Author Jack Phelps Financial Advisor / Managing Director

Jack has been involved in the financial services industry since 1989. He is the author of "The Relaxing Retirement Formula: For the Confidence to Liberate What You’ve Saved and Start Living the Life You’ve Earned."

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