When you’re young, your parents are the bank. Whether it's money for the movies, a school trip or the latest Air Jordan’s, up until a certain age, you’re their ticket to get there. But for some parents, being the bank continues into adulthood. Seeing your adult child struggle with money can be heartbreaking, but being too generous can do more harm than good. Here are the top five things to consider when your child hits you up for cash:
Why do they need it?
Do they have major student loans and a low starting salary? Do they have a health emergency or did they just get laid off? Or are you the proud parent of a frivolous spender who takes off to Cabo at every chance? If it's the former, gifting or loaning funds could give them a great head start in life. If it's the latter, make sure your children are educating themselves on their financial health before writing blank cheques. Bankrolling them indefinitely and creating dependency will do them more harm than good.
Is it a one-time thing or ongoing?
Even if your not-so-little one is the frivolous Cabo-goer, maybe you still want to help. If that’s the case, ensure you clearly communicate if this is ongoing support or a one time thing. Be clear on whether it's a loan, a gift or ongoing payments and if those ongoing payments will eventually come to an end. If it's not clear yet, agree on a check-in date six months or a year down the road to reevaluate. If it is a loan, be sure to discuss how and when they’ll be paying you back. Inviting a neutral third party like a financial advisor can make this conversation run much more smoothly.
How does it affect their relationship with money?
If your kid is forever on the payroll, they’ll never understand what it's like to go without. If you can always rely on Mom or Dad to bail you out, chances are your spending habits will be a bit more extravagant. If they know they’re largely on their own, they are more likely to think critically about spending and saving.
How does this affect you?
The reality is that you need money too. As much as you love them, you have to ensure you are taken care of. As we age, we typically have less money coming in and our expenses can skyrocket, especially when it comes to health spending. Make sure your gifts don’t hinder your retirement plans. Giving too much now and needing your child’s support at age 80 isn’t the ideal scenario.
Why are you doing it?
Be clear that you are doing this to help them find their footing and build a healthy financial future. If they need extra support, consider connecting them with a financial advisor to improve their financial literacy. Companies like Vexxit match people according to where people are at in their phase of life, and if they are strapped for cash, it's free to match with an advisor on Vexxit.