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Don't Give Your College Graduate a Free Ride

If you help, insist on rules and discipline

When my daughter graduated from college, I had more than one reason to celebrate. Sure, I was proud of her academic accomplishment. But I was equally elated at finally being done paying for tuition, room, board and other expenses. When the calendar turned to May, I welcomed the end of monthly $500 payments for her college apartment.

See also: College graduates moving back home.

Place limits on financial help you give to your adult children

Place limits on financial help you give your college grad. — Photo by: OJO Images/Newscom

My celebration was short-lived. In July, I will again be writing rent checks on her behalf. Her entry-level job with a major hotel chain located 2,000 miles from home comes with a fancy title and a modest paycheck.

Her expenses remain our expenses, for now.

I am not alone. Nearly 60 percent of American parents provide financial support to adult children who are no longer in school, according to an online poll conducted in May for the National Endowment for Financial Education. Thirty-three percent take on additional debt or delay their retirement to help their offspring.

What to do if your new graduate turns up asking for money?

A frank conversation comes first, NEFE chief executive Ted Beck suggests. "You are talking about the child becoming an adult," he says. "It's time to have adult discussions about what you can and can't do and what your expectations are."

Watch your own back

Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, a nonprofit that promotes financial literacy in families, says parents should also sit down with a financial professional to crunch the numbers to find out the impact on their own retirement plans.

"You don't have a second chance to save for retirement," she says. "You can't go get a loan or a grant or a scholarship. … Your kids can find their way."

But often only with great difficulty. A Rutgers University study of the nationwide classes of 2006 through 2010 showed only 53 percent of grads are working full time. Of those, many are earning a lot less than they expected and have taken jobs that didn't require a diploma.

"Recent graduates are not getting jobs that are allowing them to get started on life," says Rutgers University's Cliff Zukin, professor of public policy and political science and coauthor of the study "Unfulfilled Expectations: Recent College Graduates Struggle in a Troubled Economy."

And any second job a would-be professional gets is often just as unrewarding as the first. So it's not surprising that many are turning to their parents for financial help or a roof over their heads.

Next: A few rules parents should set for kids moving back home. >>

Rules, rules, rules

Financial adviser David Latko, author of Everybody Wants Your Money, says parents getting this call must insist on "rules, rules, rules." Here are a few of his:

  • Create an "exit strategy" by determining how long a child may live at home or receive your monetary support.
  • Establish a dollar limit at the Bank of Mom and Dad. Once that maximum amount is reached, no more money will be given until the original amount is repaid.
  • Create a signed, notarized contract when lending money so that loans do not become gifts if a child gets married or divorced or if a death occurs.

Period of adjustment

Fifty-one-year-old Thomas Stock of Crystal Lake, Ill., is adjusting to his oldest daughter living at home again after her graduation from the University of Illinois. For now, Caitlin has the temporary use of a family car as she begins a sales job with a technology company.

"I told her, don't worry about rent," says Stock, a financial adviser. "Get a car. Make that payment. But — and that's a big but — I want to see some savings. I don't want to see her partying all the time."

His generosity may also have a time limit. "I am thinking in six months let's reevaluate and see how it is working for everybody," he says.

You may also like: Providing financial support to adult children. >>

Andrea Downing Peck is a Bainbridge Island, Wash.-based journalist who writes about family issues.

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