Must-know strategies for supporting your adult children

Key Points

  • When kids ask for money, treat it as a teachable moment to help them plan for a more independent financial future.
  • Determine whether you are providing short-term assistance, helping your son or daughter reach a longer-term goal, or if there is evidence of a troubling trend.
  • Avoid putting your retirement at risk to help out your children.

Have you gotten that call lately? The one where your son or daughter, slightly embarrassed, calls (or texts) to ask for money? And, how soon can they come over to pick up a check? Or, perhaps you hear, “Would it be possible to move back home for a few months so I can save some cash?”

You are not alone. According to a Pew Research Center survey1 released in 2015, 61% of parents have provided some financial support to at least one grown child in the past year.

When children have money issues, it’s only natural for parents to step in if they have the means to help. But, where do you draw the line between supporting your adult children and derailing your own financial future?

What to do when they ask for money

First, it’s critical to understand exactly what the money will be used for. Let’s say your daughter loses her job and needs money until she finds a new one. If you help tide her over while she job hunts, you can work out what expenses your donation will cover, such as the mortgage. If the money will be used to start a small business, you can ask for a business plan to see exactly what income is forecast and what skills your child needs to make it successful.

If, on the other hand, she’s asking for help to pay off significant credit card debt, you may not be willing to write that check. You might provide a loan with a lower interest rate and ask that she show you a budget that demonstrates her future income will be adequate to pay you back.

Take the opportunity to help them plan

It’s often difficult for a parent to say “no.” Sometimes it’s easier to say “yes, if.” For example, “Yes, I will give you this money if you show me a family budget. I want to see that you are making adjustments in your lifestyle so that you can comfortably live on what you make, now and in the future.”

Is it a solution or a troubling trend?

Take a step back to see if you are enabling a problem or supporting a new solution. If the financial gift is a short-term fix and no major behavior change accompanies it, the problem may only be postponed and could lead to multiple cash requests over time. 

On the other hand, the request may open the door to financial security. If, for example, they are seeking funds to purchase equipment to start a business. 

Help them without hurting yourself

How will your decision affect you over the long term? If you are compromising your own dreams, make sure you do so with your eyes open to spare future regret or resentment. Make sure you understand that if you deplete your 401(k) to help a child, you will likely owe taxes on the money and may also be faced with early withdrawal penalties.

Perhaps with the help of an Ameriprise advisor you can find a “win-win.” For example, one couple had money invested in short-term bonds that were returning only 2 to 3 percent. When their children asked for help purchasing a home, the parents redeemed that investment and worked with an attorney to draw up a loan agreement. The terms of the loan were better than the children could get in the open market, yet the parents received a higher interest rate than they were earning on that portion of the portfolio.

When it comes to supporting adult children, you want to be a source of help and a solution to the problem, not just the person who signs the checks.

Curious if you’re in the position to financially help your adult child without jeopardizing your retirement goals? Take the 3-Minute Confident Retirement® check.