Financial Support for Adult Children

“Mom and Dad, I need some money.” All too often, and perhaps especially during the holidays, parents who had hoped their children would be self-sufficient by now hear that request from their adult children.

 

Many parents feel conflicted about what to do.  They want to be supportive.  They understand that finding a good job can be difficult in today's economy.  They fear, however, that giving their adult children money might enable their children to live beyond their means and would deny their children the satisfaction of figuring out how to get through tough times on their own.

 

How do you decide whether to loan, or give, your adult children money?

 

When confronting this difficult decision, I encourage my wealth management clients to reflect on these five considerations:

 

1.  Consider your own financial situation first. 

 

Whether you plan to loan or give your adult children money outright, it’s wise to consider your loan might be a gift since parents are rarely willing to disrupt family harmony to get paid back. 

 

It should go without saying that you should never give more than you can afford to lose.  Georgia’s Governor Nathan Deal and his wife Sandra wanted to help their daughter and son-in-law open a sporting goods store. They lent them $2 million and guaranteed a series of bank loans, then narrowly escaped personal insolvency when the business failed. The loan and his precarious financial situation became an issue in his 2010 campaign as voters questioned Governor Deal’s ability to run the state’s finances.

 

It is not an uncommon scenario. I have seen parents put themselves at significant financial risk in an effort to help, or prop up, their child. If the child can't pay the money back, the parents end up feeling scared about their ability to take care of themselves.  Work with a financial advisor to get a clear sense of how the gift to the child could affect your own financial situation.

 

2.  What is your goal as the parent of an adult child? 

 

Some parents want to encourage independence and self-sufficiency.  Others remember the struggle of being a young adult, and want to make life a bit easier for their own kids.  Still others want some combination of those two, often conflicting, goals. There is no right or wrong answer to this question.  There is only the right answer for you.

 

3.  Consider the request in context. 

 

All requests for money are not the same. Does your child make a decent living but struggle to live within his means? Children raised in affluent families sometimes feel entitled to maintain the same lifestyle they had growing up. 

 

Or does she live within her means, but hasn't had much time to build her savings and now faces an unexpected large bill, like a car repair?  Or perhaps your grandchild has a learning disability and your child needs money to help pay for a tutor or private school.  

 

4.  Identify your goal before deciding whether to lend the money.

 

After considering the request, think about what your goal is within that context. In the example of the child living beyond his means, you might opt not to lend him to money so he can learn to live within his means.

 

You could make him a one-time loan after he agrees to seek help with his spending problems. He can agree to contact a consumer credit counseling agency or if you sense there may be an addiction to the spending, he can attend Shopaholics Anonymous meetings.

 

With a child who has demonstrated financial responsibility but has a one-time request, you may want to lend the money but agree on a schedule for her to pay it back.

 

You can always choose to just give the money with no strings and no expectation of repayment.  It all depends on the situation, and what you hope to accomplish.

 

5.  Broaden your definition of wealth.

 

You can often help your child enormously without giving or loaning them a penny. When you expand your definition of wealth to include your time, Signature Talents, wisdom, intelligence, and network, you might realize you have a wealth of ways to help your child that don’t include money. For example, if your child needs money to pay the rent because she lost her job, consider using your network to help her find a new job. 

 

Many adult children get in a financial bind during the holidays, and come looking to their parents for support.  Always remember there is never a "right" answer.  Any choice you make will have both costs and benefits.  Using these five considerations should help you figure out the right answer for you and your family.

David Geller is the author of Wealth and Happiness: Using Your Wealth to Create a Better Life.  He is the CEO of Atlanta-based GV Financial Advisors and is available for professional speaking engagements.