While my children are barely old enough to hold a job (other then summer camp counselor) I am often asked by clients how to manage requests from their adult children for money. Some parents always say yes and their children are accustomed to the supplemental funds. Other parents would never dream of it and deny all requests uniformly. For people who fall somewhere in the middle, I recommend the following do’s and don’ts for giving money to adult children.
- DO consider your own financial needs first! While $1,000,000 and more ‘in the bank’ may seem like a lot of money it can dissipate quickly and increased life expectancy creates a very real concern that you could outlive your money. Talking to a Financial Advisor can help you plan for your own needs. At Personal Asset Strategies, Inc. (“PAS”) we work with clients to calculate their lifestyle expenses and make projections about their future needs and plans and how to meet them, so that clients can fairly assess whether helping a child might leave them without the funds they will need in their senior years.
- DO consider whether the need is temporary or long term. Sometimes people are confronted with truly unforeseen expenses like a divorce, the loss of a job or an illness. If the need is temporary and your funds are sufficient to cover your own needs, I recommend helping your adult child. However, if dining at expensive restaurants, going on lavish vacations, and throwing expensive affairs are part of their lifestyle while asking parents to provide funds for basic expenses such as children’s school tuition or mortgage payments, THAT is not ok.
- DON’T feel that all children must be treated equally. Different children have different needs and abilities. It is reasonable to assist financially one child whose need is consistent with your values and deny a sibling “equal” assistance for a less worthy cause.
- DON’T withhold emotional or intellectual support even when you determine that financial support is not appropriate. Helping a child to make decisions about a career change or divorce can be much more valuable than financial assistance. The child may not yet have the wisdom to appreciate that, but it goes along the lines of the old saying: “Give me a fish and I eat for one night; teach me to fish and I eat for a lifetime.”
- DO consider whether financially assisting is enabling the child or may cause worse problems for the child down the road. Obviously if a child has a drug or alcohol problem, there is a huge risk that assisting them is enabling their self-destructive behavior. But there are numerous other examples that are more subtle. If a child is struggling in her marriage and her spouse is pressuring her financially, giving her money can enable a bad marriage to continue and when the divorce does occur, the spouse may demand the continuation of the financial support which already has become a pattern. Another example is where a child is pursuing a dead-end career or business and never takes responsibility for his financial life. Financially assisting the child will enable him to avoid “growing-up” which will certainly hinder his happiness and success in the long run.
- DO consider formalizing a loan into a written document and applying periodic interest. While it may seem cold at first, this will make it clear that the money is expected to be returned, and that it is not a gift which could result in tax implications to you. It can also protect a child from her future ex-spouse claiming that an in-law had been supporting their family. The document can set out expectations for repayment and help to encourage responsible behavior by the adult child.