Melissa Joy explores a significant yet often overlooked trend: the increasing dependence of adult children on their parents for financial support. Drawing from a recent Credit Karma survey, which reveals that one-third of American adults rely on parental financial assistance, Melissa delves into the problems this trend can cause for parents while also providing practical measures to promote financial independence within families.
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Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.
Melissa Joy explores a significant yet often overlooked trend: the increasing dependence of adult children on their parents for financial support. Drawing from a recent Credit Karma survey, which reveals that one-third of American adults rely on parental financial assistance, Melissa delves into the problems this trend can cause for parents while also providing practical measures to promote financial independence within families.
Listen and Learn:
Resources:
Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.
Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a Certified Financial Planner and Founder of Pearl Planning.
Melissa Fradenburg:I'm Melissa Fradenburg, Financial Advisor. We dive deep into topics like work-life balance, financial planning, personal growth and the intricacies of the sandwich generation.
Melissa Joy:Tune in for money conversations that every woman needs to have. Welcome to the Women's Money Wisdom Podcast. It is Melissa Joy here today. I am excited to be talking about a topic that's really close to my heart, both as a parent but also as a financial planner.
Melissa Joy:I read an article this week and it was in the Wall Street Journal. It was talking about families and how adult children have become dependent upon families. The title of the article is these Families Are Shutting Down the Bank of Mom and Dad. This is a topic that is often unspoken. It's not a topic that is comfortable to talk about because everybody's a little different. I think we often keep details of financial dependence from adult children out of the conversation with peers or even financial professionals. I've just seen it be one of the biggest threats to successful retirement and successful long-term financial health for families. I thought this was the perfect opportunity to break down what's going on, how you can do better and what to do if you find yourself just in a completely codependent relationship or a situation where you cannot untangle your own finances from the dependency of adult children.
Melissa Joy:I wanted to get started by talking about some statistics that were mentioned in the article. There's a credit karma survey that came out at the beginning of January this year. It talks about one-third of American adults rely on their parents for financial support. This is people over the age of 18, but it's not just limited to people that are in college. It goes across the spectrum. That is a subject stunningly large number. When you think about it and you think about the fact that you may have friends who have kids early ages and college just newly adult, these stats really go across decades. Most commonly, parents support their kids by allowing them to live at home. That was 64% of the examples. Also, they often pay some or all monthly bills. That was about 50% of respondents. Because of this, the survey respondents reported as parents, that nearly 60% of parents who participated in the survey and financially support their adult children say that that causes mental stress 59% in total. Those are really high numbers. That's talking about both your wealth and your health. Frankly, what is more important in terms of wealth than your own personal health?
Melissa Joy:I really wanted to break down as a financial planner, someone who's observed over the decades families who have been entrenched in a dependent relationship for their adult children, a few things. First, I want to talk about how to be proactive and what you can do to promote financial independence within your family. Second, I want to talk about what you should consider doing if you do have and have decided to allow for some additional support with family members, which is completely okay. But then, third and most importantly, if you're kind of over your skis and you have too much money going toward kids and not kind of protecting yourself, some things that you need to be thinking about and talking about with people who are important in your life. I think this is a discussion that needs to happen more, so I'm so glad that the article prompted this episode. So I'm a parent and I, frankly, you know it's easy to sit in the seat of a practitioner and say you know you need to do better, but as a parent, I don't always feel like I'm doing my best when it comes to preparing my kids for financial success. But some of the things that I think about that are important, that we practice in our daily life and I also encourage others to think about and talk about, is to introduce money concepts early and also talk about money realities. Perhaps you're in a home where you are comfortable in your wealth and you have enough financially. Then you can talk about differences between different households. It can be helpful to do volunteer work with those that are less fortunate and talk about the realities and how people come to be financially comfortable and how people what type of responsibilities people have as adults when it comes to money and why people may be in different circumstances based on different families, but also based on different times in your life and things like that. I think it's important that you don't kind of hide money facts, but you start to introduce them into conversations.
Melissa Joy:It is also critical, especially as your kids get older, to set expectations. One of the most prevalent or biggest kind of conversations is what are expectations around college? Are there certain expectations about what schools could be paid for or is the bill on the kids? There's no wrong answer but telegraphing and encouraging kids to communicate with you and talking about what your expectations are. Early before you get to senior year and you're kind of shopping colleges, you turn around and say, well, I'm not footing that bill. That's really important. You can talk about different pathways that may be appropriate for your family in terms of funding or not funding college education. That can also include time limits. Perhaps it can include what institutions you would pay for or what amount you would pay for. It could include expectations about funding college and what the implications might be, for example, if you expect your kids to fund school through student loans. Help to educate them about what impact that will have and what different decisions about either financial institution or higher education institutions, as well as different careers, might have on the ability to pay those loans back over time. Also, I think it's important, in addition to that communication, to provide your children with boundaries and limits, let them understand that not everything is possible, and also help to instill a value for patients, because so much of money success has to do with reducing impulses, increasing your patients and your willingness to wait either for things or with your investment behavior. So these are some of the important considerations.
Melissa Joy:Also, though, you have some homework as a parent, so it's not just giving your kids the right skills. You also need to have forethought in planning. If you do think, for example, that you have a commitment to pay for college for your kids, or private school, etc. And then it's really critical that you make a plan that happens before, again, senior year, or the moment that you're writing tuition checks, or you're investing in a club for the kids or summer camps, that you have a long-term plan that can support the financial decisions that you're committed to. And if you don't, then why not get started now by either starting a college fund, discussing your different commitments with your decision-making partner if you're in a relationship and or financial professionals? I just think it's really important to both be preparing the next generation while you're also preparing your own finances to be able to support things.
Melissa Joy:And if you just can't cut it, if you can't fund, for example, college, you've got to be very careful about kicking the can down the road by putting yourself in debt to fund those types of things. It's very difficult for a parent who hasn't been able to pay out of current cash flow, for example, for college, to use Parent Plus loans, which are at a higher interest rate than student loans. That often kicks the can down the road where you're really going to have to turn around and end up paying for your kids college with your retirement funds, which is just a very difficult choice. Okay, so you're setting the table, you're communicating with your kids, but I know that for many, if not most, families, there will be financial support over time for a long time, and so kids turn 18 and for most of us nowadays they're not on the hook for their own expenses just quite yet.
Melissa Joy:So when you get into a situation where you are funding as many of us will and want to the life of an adult child, whether they're 18 or 35 or 50, then I think it's important to be on the same page with any co-decision makers. You have your spouse, your partner, the kid's parent, so that you have an understanding about how the family is going to approach money. So, for example, if you're a single parent and there is another parent involved, don't make up for the other parent, withholding things If at all possible. If you're able to co-parent, then coordinate and talk about who's covering what expenses, to the extent that you're able to. If you're in a relationship, if you're in a relationship with the young adult's parent, then talk together about what your expectations are how long school will be paid for, how long can the kids live at home, what bills will be paid for, what are expectations for contributions from the young adult in terms of financial support, whether it is more of a kind of getting used to working and having financial responsibilities or they're able to more meaningfully contribute.
Melissa Joy:If you're in a circumstance where the kids have been living with you, cohabitating, for longer periods of time, but that's working for you. There could be a period or point in time where, instead of just having mom and dad pay the bills mom or dad even having an expectation like hey, you're 24, you're 25, we have a mortgage or rent, and at this point in time it makes sense for you to be a contributor. I'm keeping a room available for you, you're contributing to utilities, groceries, etc. It doesn't always have to be on mom and dad. So have some responsible adult conversations, both with the young adult as well as with any other co-decision makers, so that you are again communicating effectively talking about expectations, talking about when you expect for things to change, so that there is clear expectations and communications not only for your kids, but also for yourself, and sometimes it's just something that's happened out of habit, and so having discussions and communications can be really critical.
Melissa Joy:I have to tell you, though, that in so many cases, this can be the biggest threat to the success of a parent's retirement, even, or including, people who are extremely wealthy. You know the lifestyle that you want for your children or that you have grown accustomed to, and thus your family has grown accustomed to can often feel like a necessity for adult children, and it can just be really putting very wealthy people behind the eight ball when you need to fund someone else's lifestyle in the middle of their life, when they're kind of they and their peers are in peak, what should be accumulation years can be a big threat to successful retirement. That is not to say that for some people, especially if you're choosy about when you support your kids and it's really something that you decide versus something that becomes a need and an expectation, that is certainly doable and I often encourage people to do what they desire when it comes to supporting adult children, whether they're going through a difficult time or you would like to make gifts during life. But there are some cases where, even with millions of dollars saved and kind of earned over the years that you have for retirement, your adult children can really put you under the gun to running out of money early, especially if there's just like constant need and dependence. So one of the things that I have found is that in these circumstances, if this sounds like it's what's happening with you, that is very difficult to get the real real of what's going on information from parents, because there's some shame there, both in terms of their decisions in terms of supporting the kids, but also because the kids may not be as independent as you would have hoped.
Melissa Joy:And, additionally, it's just not a comfortable conversation to have with your friends and or with people like me, with your financial planner so you can say you might be saying, yeah, we helped them this year, but we don't plan to do that in the future. But every time the adult child asks for help, you know the checkbook is out and you're writing the check for however much they want or need. And so I really want you to, if you're listening to this and realizing that you are in a situation where there's a lot of dependence from the next generation, be honest first with yourself and then with the people that you need to discuss how to make some changes. So in some cases, it could be a conversation with the kids saying you know, hey, this needs to change and here's why. But in other situations, I really think it would be who of you to talk to a financial professional, like a financial planner, and or, in some cases, you may need to talk to a financial therapist about, you know, kind of making them the bad guy to help set boundaries and just say you know, I'm sorry, but my financial planner said I'm going to run out of money if I keep writing checks to you and 10 and $20,000 chunks, which happens sometimes. But we need transparency to know what's going on, to be able to assess and assist, and so being honest with yourself and with the people that can help you I think is a really critical start.
Melissa Joy:Do disclose true costs. You may need to go back and look over the last year or two and, just like write down the real numbers of how you're supporting whether it's the phone bill that you never cut off or it's just, you know, kind of constant nickling and diming, or if you know you're kind of the emergency fund and but that cash register keeps getting opened. Go back and take a look at things. And then also I think it's critical you know there are families that have true special needs, needs that will not be met otherwise, whether it's a kid or adult who has, you know, a different diagnosis than independent living. But but take some time to assess and differentiate between true needs and wants and also be really. If you're in a circumstance where you know there's just no way out, the kid is going to need to have the rent check written.
Melissa Joy:Do not set yourself up where the kids are. If you're in, if you've kind of grown up with with wealth and higher earnings of code, with all of the kind of abundance and improvements on life that come with that, do not expect to fund the lifestyle to in the same way for your adult children who are not able to independently kind of meet that standard or cost of living, Because that can be compounding both at spending your money as well as setting an expectation that is unreasonable or unachievable for that next generation where there has to be either a change where they are able to earn more or make more over time in order to expect that type of lifestyle. And it's setting both them as well as their children, if they have them, up for just a hard reckoning. If you don't teach them or you know if you have to make contributions, you're contributing in a way that would fund a smaller lifestyle. If there's any flexibility there, of course, you know needs come up over time and, being frank with yourself about what you plan to budget, you can plan for that rainy day, not only for yourself but also for your kids. You just can't spend that money twice.
Melissa Joy:And I often find that the parents that struggle to kind of limit that dependency with the next generation are also people that struggle with kind of boundaries and limits on some of their own financial decisions as well. And so you know, if you find yourself up against it on both sides, you know your retirement bucket probably can't fund both. And again, I would refer you to talking frankly with a financial planner or professional about avenues and options and also just like looking at the numbers, especially if you're nearing or in retirement, looking at those numbers and making sure that there's any sort of sustainability about the decisions you made and kind of you know the habits that you're repeating. And if there isn't sustainability, then start to make some changes on your own behalf. And again, like I said, it is a gift to the next generation to have boundaries and limits, because there will be a point in time where you may not be there and you know, know some of money is too much in some cases.
Melissa Joy:So really kind of addressing in a mature but also, you know, forthright and intentional way a need for changes, I think is critical.
Melissa Joy:I hope for many of you, though, this discussion, which goes, you know from a younger age, all the way through the potential where there really is an ongoing dependence, is informative and enlightening and helps you to kind of reprioritize and reflect upon what's important to you, because there's so many of our listeners who are really in the thick of it of raising those kids and there's 100 things on your plate, 100 places to go and things to get done. And if you can have some of those discussions with the kids along the way about how important it is for them to be thinking about being independent over time, learning how to be with money and also choosing people around them that are responsible when it comes to money, I think that can create such a great pathway to success and also keep you safe from one of the biggest risks in retirement, which is just having those adult children that need more than you can provide. So with that food for thought, I wish you a happy week and thanks for listening in.
Melissa Fradenburg:Thank you for listening to the Women's Money Wisdom podcast. If you found value in our conversations, please take a moment to like, follow and subscribe wherever you're tuning in from. It helps us continue to bring these valuable insights every week. Head over to womens money wisdom. com. There, you'll find tools, tips and a supportive community to help you gain financial confidence.