4 financial ground rules for your adult children
By Miranda Marquit
December 15, 2014
Most parents try to raise self-reliant children who can go out into the world and make their own way financially once they reach adulthood.
Unfortunately, due to recent economic developments, it's harder than ever for children to live on their own. A Gallup poll shows that almost 30 percent of adults under 35 live with their parents, and almost 15 percent of adults between 24 and 34 live at home.
With the prohibitive cost of student loan debt and the rising cost of living, there is a chance that your child will return home to live with you — at least for a short time — at some point during adulthood.
How can you — or should you — help them get on their feet? “See where you are. Determine if you can afford to help,” suggests financial expert Harrine Freeman. Look at your finances, and make sure you aren't putting your retirement at risk. If you find yourself stretching the budget, considering which of your bills you can skip, or dipping into savings, you need to rethink your ability to provide financial support. Once you know what you can do, establish ground rules to ensure that your child really does progress toward financial independence.
Set limits on your help
“Set a limit on how much you will help and stick to it,” says Freeman. “Don't be a sucker. Don't fall for the tears, sobs, emotional pleas or bully tactics.” Set clear expectations, and enforce the rules.
It might seem cruel to limit another adult in that manner, but the bottom line is that your child is living in your home, and you are providing financial support. “Anytime the parent's money is involved, they've earned a say in how it will be managed, regardless of how old the child is,” points out Gail Cunningham from the National Foundation for Credit Counseling.
Both Cunningham and Freeman suggest drawing up an agreement so that all parties are aware of the limits to the help, including deadlines for certain actions, requirements to look for work or attend school, and expectations for the adult child's help around the house. Requiring and enforcing a certain level of responsibility is an important part of avoiding enabling behaviors.
Don't put your own finances at risk
It might sound selfish, but it's important to not put your own finances at risk when assisting your adult child. “Don't dip into your retirement to help your child,” cautions Freeman. You should also avoid going into debt for them. Be realistic about the amount of help you can afford, and avoid imperiling your financial future.
This includes staying away from co-signing on a child's loan. “You can't control how other people spend their money,” says Freeman. “If your child doesn't pay the bill, you are responsible for the debt and run the risk of ruining your credit.”
“Activity is reported to the credit bureaus in both names,” points out Cunningham. “Mismanagement can result in dings to your credit report as well as your child's.” Let your child know at the outset that you won't help by co-signing on a loan, and that he or she will need to find other ways to fund efforts.
Check in with your child's finances
Every now and then, you should check in with your child's finances. If you have added your adult child as an authorized user on your credit card, it should be relatively easy to keep tabs on spending on that card. Be ready to remove your child as an authorized user if he is irresponsible with the account, however. (It's easy to remove an authorized user from an account, unlike a co-signer; just call the issuer.) Check the account frequently to make sure unreasonable debt isn't being incurred.
Talk to your child about budgeting, and other tools to help keep his or her finances in check. You should also verify where money is going when your adult child moves in. “If your child asks for money to pay a bill, and you want to help, ask them to give you the bill,” says Freeman.
“If the child repeatedly makes poor financial choices, continuing to bail them out is doing them no favor,” says Cunningham. Instead, Cunningham suggests that parents encourage kids to get help. “An hour spent with a trained financial professional could be a good first step toward a lifetime of financial success.”
Help should be the goal
Ultimately, you want your child to establish a firm financial foundation. Ground rules should revolve around requirements that your child work to pay down debt, spend money wisely and become employable.
You don't have to decide what to do right away when your child moves back home. “Wait a few days or a week before deciding how to proceed,” suggests Freeman. “You will have more time to think about your decision, and work out the consequences.”