Are Your Kids Threatening Your Financial Future?

Original post

Last week, USA Today published an article – “Don’t Let Your Adult Kids Drain Your Retirement” – that was sad… and shocking.

According to a new Merrill Lynch survey, 80% of parents today provide some financial support for their adult offspring.

In fact, they spend twice as much on their grown children as they do on saving for retirement.

Half of parents said they are willing to draw down savings – and a quarter are willing to take out a reverse mortgage or other debt – to provide that financial assistance.

No doubt most do this out of love, but it can still be a major mistake.

I say that because some parents won’t have enough to retire comfortably. And they’re denying their kids an important opportunity: the chance to struggle and succeed – as well as learn firsthand what it means to do without.

In my own case, my parents never offered – nor did I ask for – a single dime after I finished college. (My dad did co-sign on my first auto loan since I had limited work experience and no credit. But I made the payments.)

I drove a beater car. (The stereo was worth more than the vehicle.) I lived with co-workers I didn’t particularly like. I spent little. I dined out virtually never.

And you know what? Those were some of the best years of my life. (Taught me the value of a dollar too.)

Yet the USA Today article points out that many parents today pay for their grown kids’ rent, groceries, cable, smartphones and even vacations.

Don’t get me wrong. If you have plenty of money and want to share it with your kids while you’re still around to see them enjoy it, more power to you.

Although, even here, there’s a big difference between making your kids’ lives a little easier and turning them into entitled monsters.

I once told a friend of mine what I give my daughter Hannah for an allowance as a student at UNC Wilmington (although she works part time too).

He looked at me like I was Scrooge McDuck.

He has three adult kids of his own (well beyond college) and all are still on the family payroll. (Not that they’re doing any actual work for it, mind you.)

As someone whose future retirement is completely secure, it would be easy for me to give my daughter an unlimited budget at college.

Easy – and dead wrong, in my view.

I want her to learn to make choices, to know the difference between what she wants and what she needs.

If a special opportunity comes along for her to see a concert or take a trip, her mom and I will generally kick in. But she doesn’t shop at Neiman Marcus or ever visit the town’s fine dining establishments.

(In fact, she has only a debit card, no credit card. That eliminates the temptation to overspend, since it isn’t possible.)

Parents who give their children whatever they want – either out of love, a desire to make up for their own impoverished childhood or a sense of guilt – often find that once the spigot is open it’s hard to turn it off.

And if they don’t have enough when they reach old age, are their kids going to support them? And if so, will they resent it?

Personally, I wouldn’t want to find out. But I seem to be in rare company these days.

I know plenty of middle-aged friends and neighbors who are providing serious economic outpatient care to their grown kids. According to Drs. Thomas Stanley and William Danko, authors of The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, this is something most self-made millionaires don’t do.

It’s great to be financially secure enough to help your kids if they get into a serious crunch.

But not every crunch is life-threatening – and, in my experience, there are valuable lessons to be learned from pulling your own weight, solving your own problems and learning to live within your means.

My take? Help your kids if you want to and can afford to…

But not if you’ll pay for it for the rest of your life.

Good investing,

Alex