Railroad Tracks

Speaking about financial literacy at a recent women’s conference, I received energetic applause when I argued it wasn’t healthy to give kids everything they asked for. I specified this also goes for adult children boomeranging back into their parents’ lives; the cheers became even louder.

I realize it’s terribly difficult to be rational about the people we love the most. And let’s be honest: when it comes to parenting, the message we often get (and give) is “more is more and less is less.”

But is it possible to give too much financial support to children?

To minimize the understandable emotional impact, let’s take the focus off our love bundles for a minute. What does that financial assistance actually cost… parents?

Quite a lot, it turns out. A U.S. Trust survey of wealthy Americans (net worth $3 million or more) found that 56% have given “substantial” financial assistance to adult children. Importantly — here’s a stat that makes financial advisors like me wave red flags — 69% had not factored that support into any existing financial plan.

Alas, ongoing child support can lead to major financial consequences. In an Ameriprise study on retirement derailment, 90% of respondents reported at least one major event had stalled their retirement savings progress. Yes, healthcare and job loss were common derailers.  But for almost one in four (23%), the ‘event’ was supporting grown children — or even grandchildren.

It has been widely reported that the last recession and subsequent sluggish recovery were especially brutal for Millenials; their unemployment rate topped 13% in January, according to the Bureau of Labor Statistics.

The sleeper story is the subsequent impact all that joblessness has had on parents of Millenials. In a survey conducted by the National Endowment for Financial Education, 26% of parents helping their kids had taken on additional debt in the effort. Many were addressing immediate hardship, but 37% stated they gave because they didn’t want their kids’ lives to be as hard as theirs had been.

Could those protective instincts backfire?

Consider this: 35% of the Ameriprise study parents said their kids hadn’t mastered even the basics of financial responsibility. Their kids were also polled, and 56% of them said their parents had never talked about budgeting or saving. Just 11% of surveyed adult children said they’d been advised to “expect the unexpected.”

Most parents would help with medical treatment or staving off a foreclosure. Should they also step in to cover the rent? To wipe out early credit card debt? How about the delinquent cell phone bill?

Sadly, there’s no algorithm to provide clear-cut answers to those questions. If you’re considering financial aid to an adult child, perhaps the best question to ask is: “will this money empower my child – or enable them?”

One serious question may not be enough to resolve the issue for you. But that sort of cleared-eyed inquiry is essential to good financial sense and responsibility.  And if you involve your kids in your thought process, the experience may be more valuable to them than any check you write.