Adult Children and Financial Help

A recent CNBC headline, “Parents are overextending themselves to help their adult children financially” describes a real and present issue. The article went on to describe how 7 in 10 parents made personal financial sacrifices to help their adult children. Sacrifices from as benign as skipping a vacation, to dipping into retirement savings, and as risky as taking on unexpected new debt later in life. There’s nothing wrong with wanting the best for your children and helping them out in tough times. But the help you provide shouldn’t place your own financial well-being in jeopardy.

The first rule of lifeguarding: Do not endanger yourself in order to save the other person

• Not having enough in your retirement savings as a result of helping your kids pay rent can easily backfire:
  If paying rent for your adult child means sabotaging a comfortable retirement, it’s likely not the wisest idea. By withdrawing from your 401(k) early you’ll lose out on compound interest and have to pay a 10% penalty, plus income tax, on whatever funds you take out. Plus, if you don’t have enough money to sustain yourself in retirement, your kids could be on the hook to help you out financially.
• If helping your child stay current on their student loan payments means:
  You might not be able to cover an unexpected expense.
• You most likely shouldn’t touch your savings:
  Not having an emergency fund and having to potentially take on high-interest debt to cover an urgent cost can hurt your finances much more in the long run.
• You also don’t want to undermine your debt repayment goals:
  If you have high-interest debt, such as on credit cards. The higher you let your balances get, the quicker interest charges grow — and the harder it can become to get rid of debt.

It’s important to set expectations and give your children a timeframe for when they’ll need to be financially independent. For instance, you can let your 20-year-old know that you only plan on paying their cell phone bill until they turn 22. This way, your child will have adequate time to prepare for when they’ll need to cover this expense on their own.

Trading Debt With Your Child Can Lead to Disaster

If helping your child involves you opening new debt to pay off their debt it is time to have a conversation to discuss all the options you have. Especially if your child’s financial situation is caused by excess debt, medical expenses, layoff, drop in income, over-extended credit cards, etc. Our compassionate team is here to walk you through all of the debt and financial relief programs available. Call the Bond & Botes Law Offices at 1-877-581-3396 or email us through our website to set up an absolutely free consultation.