If your kids — or even your grandchildren — are making you broke, it's important to put an end to excessive financial handouts that could be driving you into debt.
As parents, it's natural to want to help our kids in every way possible. And for many people over 50, that means providing both emotional and financial support to adult children.
In fact, according to a June 2011 Investor Index survey by TD Ameritrade, not only are Baby Boomer parents willing to come to their children's financial rescue, many parents are also sacrificing their retirement and economic security to do so. A recent AARP study shows that 49 percent of adults age 46-65 say that they find it difficult to save for retirement.
And since the first Baby Boomers turn 65 this year, the highlights of the TD Ameritrade survey are all-the-more striking. Among the findings:
67 percent of Boomers surveyed say they would feel obligated to financially support their adult children if asked
57 percent of those polled said they were willing to support their offspring even if it hurts their own retirement
54 percent of Boomers have had adult children live with them for at least three months
42 percent of those who did allow adult children to return home said doing so had a negative impact on their finances
So what's to be done?
Experts say a combination of tough love, fiscal discipline and good communication between family members are all required in order to help your children achieve financial independence — and help you salvage a comfortable retirement.
In cases of extreme financial dependence, which can sometimes veer into a financially abusive relationship, it may also be necessary to enlist the assistance of a third party if you need help in cutting the financial apron strings.
Start With a Heart-to-Heart Talk
Although many parents are reluctant to share the details of their financial circumstances with their children, when your kids are taxing your finances, it's a good idea to paint a realistic portrait of your situation.
Explain to your children honestly what you can and cannot afford. Often times, children may mistakenly think that you are better off economically than you really are. There's no shame in telling your children that because of a host of reasons — perhaps the downturn in the stock market, the soft real estate market, your own work situation or expenses — you simply don't have a lot of extra cash to give or loan them.
By candidly divulging at least some basic information about your own financial standing, your children may be less inclined to lean on you for economic help.
"This is something that we deal with all the time and is always a very difficult conversation to have with a parent," says Jonathan Blumenthal, CFP and senior vice president at Peak Capital Investment Services. "However, the fact is, retirement is not a possibility when you are saddled with the expense of having to take care of adult children."
Set Reasonable Limits
If your child does request monetary help, only agree to provide financial support if you can realistically afford to do so without sacrificing your own retirement or seriously impacting your financial health. And if you do say "yes" to helping out a child, be sure to impose reasonable limits and boundaries.
"No parent wants to see their child struggle financially, but assistance should come within reason — and with firm expectations," says said Lule Demmissie, managing director of investment products and retirement at TD Ameritrade. "While food and housing might be reasonable, a data plan for your son's smartphone shouldn't come between you and your retirement."
Encourage Financial Responsibility
Even if your child relies heavily on you for economic support, you can still try to encourage him or her to be fiscally responsible in some areas. For example, if your child is living at home, charge them a modest amount for rent and food, suggests Jesse Ryan, managing director at Accounting Principals.
"If the parents can afford it, take the money that the child is paying for rent and place it into savings for a 'move out' plan," Ryan adds.
Create a Gradual Transition Plan
For those who have adult children that have returned to the nest, be polite but firm in making it clear that the current living arrangements are not meant to be permanent. In fact, you should create a gradual transition plan where you both agree that, over time, you will start decreasing the amount of financial support you are providing to your child.
The idea is to do this gradually, "so that it's not so shocking for your children," Ryan says. Similarly, Ryan recommends setting a timeframe of six months to one year or so when the adult child is expected to move out and start living on their own. "By that time they will have a nest egg for expenses and will be used to paying for themselves," says Ryan.
Helping your child out of an occasional financial pinch can be emotionally rewarding for parents with the financial wherewithal to provide such economic help. But if you're an aging parent struggling with your own considerable bills, it really is necessary to establish proper financial boundaries so that your kids don't wind up driving you into debt.