Avoid Creating Financially Dependent Adult Children: How to give money to your kids and feel good about it.Submitted by Birchwood Financial Partners on September 18th, 2017
I was one of those moms who insisted her kids do chores. Not just 5 minutes worth but a number of regular daily chores. We did this to develop of a sense of belonging and to learn responsibility. Another reason was I didn’t want them to see Mom and Dad always working while they loafed around the house. If adulthood was that drab, why would they ever want to grow up?
Now my kids are in their twenties. They both moved gracefully into adulthood and accepted the responsibility of running their lives amazingly well—I credit the chores. Like many Millennials they are faced with the low paying salaries. Responsibility? Check. Able to make ends meet? Yes, but with little to no breathing room. Should we their parents help them?
Many of our clients help their adult kids. For the most part, their help is quite reasonable and has time limits and doesn’t deter them from eventually being able to stand on their own two feet. We suspect a few may being taking advantage of or manipulated. In some cases, children have become dependent on their parents. So how do you give in a way that delights you but doesn’t harm them?
First, find out if you can afford to help. Talk with your financial advisor and ask them to add gifting to the kids as one of your goals, then run an illustration to make sure gifting doesn’t harm your other goals or retirement. Assuming you can afford to give, have extra money and are happy to share with your children then you might consider the following ideas to give money to your kids and feel good about it.
Pay for the Trifecta:
The typical three bills parents start paying for and continue to are: Car insurance, cell phone bill and health insurance. You’ve been paying these bills all along so they are easy to keep, but set time limits. Age 26 is when kids must come off our health insurance due to Affordable Care Act regulations. Age 25 is typically when the car insurance company will begin charging a normal premium versus a higher one for being young. And figure out a date to cut the cell phone bill or have them start paying for their portion if utilizing a family plan.
Investment in their near term future:
What will help launch your kids and set them up for independence? Grad School? A certification program? Consider loaning them funds or offer them a match so they will have “skin in the game”. Or invite them to live at home while they complete their education.
Introduce them to your Financial Advisor:
Consider paying for a starter financial plan with your Financial Advisor. At Birchwood, we offer a complementary meeting with all the adult children of our clients. It can benefit clients because they know their kids are getting advice from someone they trust. It can benefit their kids because the advice is not coming from mom and dad and it helps sets them in a good financial direction.
Help them with their distant future:
Contribute to a Roth IRA for them. In 2017 they can contribute $5,500, or the amount of income they have earned (whichever is lower). The funds can grow tax free and if used after age 59 ½ they come out tax free. 40 years of tax free growth is an amazing gift!
Buy Family Happiness:
Boston Magazine sites a Harvard Study that buying experiences instead of things can actually buy happiness. So include your kids in your family outing or go on vacation together. Skip giving them money for their solo events so they will stay motivated to work for what they want. Buying joint adventures shouldn’t create an ongoing financial need. And it could make you happy!
Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.
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