As a parent, you likely help your child. You may like to spoil them with meals out and nice clothes. If your teen needs $20 on the weekend, you likely give it to them. You may buy them a car when they turn 16. You may help pay for college and give them spending money so they can relax and have fun in between studying.
Of course, when your children are small, you’re responsible for them in many ways, including financially. However, often parents don’t cut the cord, so to speak, and continue to dole out money to their kids when they are in their 20s, 30s, and even later in life.
If you’d like a solid retirement, though, it’s best to take your child off the family payroll sooner rather than later.
Sound harsh? Perhaps in today’s time it seems that way, but keep in mind 50 or 60 years ago, once a child turned 18, he was essentially on his own. He’d likely marry by his early 20s, have a house and start his own family. He wouldn’t turn to mom and dad for financial help unless he was facing dire circumstances.
How An Extended Adolescence Is Costing You Your Retirement
In our modern times, the extended adolescence which sometimes stretches into the late 20s, is costing parents. They continue to pay expenses for their children, often at the detriment of their own bottom line.
Thanks to a tight economy and unemployment that may work its way into an early retirement, more and more who are 50 and older have less and less saved for retirement. In fact, only 22% of those ages 55 or older have more than $250,000 saved for retirement.
That problem by itself is severe. When you add to the mix parents who’ve been generously giving money to their grown children and no longer have a full time income and instead are relying on meager retirements savings, you have a financial nightmare.
NPR recently reported that “the amount younger Americans owe on their credit cards dropped by nearly 40 percent between 2008 and 2012, but middle class Americans over the age of 50 have not followed suit. AARP says they now owe more on their credit cards than younger Americans do.”
Seniors owe more, but they have less money with which to pay the debt. NPR went on to share the story of a woman who is in her 70s and has supported both of her children who are now approaching their 50s. The son was a heavy drug user, cleaned up his act, and asked mom to help him fund his new business, which she did to the tune of $40k. As you can guess, the business failed, and now mom is living off social security because she’s used most of her retirement to support the kids over the years.
How To Cut The Financial Cord
If you want to avoid a similar financial fate, it’s important to teach children when they are young that they will be expected to stand on their own financially once they reach adulthood.
1. Teach your children how to be financially responsible when they are young.
If they blow through their allowance before the week is half over, don’t give them more money. Let them experience what it’s like to be without money for awhile. Sit them down and teach them how to make smart money choices and how to budget. Even if they become spendthrifts later, they will know how to be financially responsible so they can change their ways.
2. Don’t buy them everything.
We all want to give our children everything, but often that hurts our kids instead of helping them. Set aside a certain amount you’ll spend on back to school clothes, for instance. If your daughter wants to buy expensive designer clothes, she’ll have to come up with the difference. Take your adult kids out to eat once in a while and pay as a treat, but don’t pay every time. This adds up fast.
3. Never cosign a loan.
Even if your child is responsible, don’t cosign a loan. If the bank is asking for a cosigner, that likely means your child is not yet financially ready for the loan she is seeking.
4. Let him know when he is on his own.
It doesn’t hurt to be explicit with your child and tell him exactly when he is on his own. For instance, once he graduates from college, he’s expected to handle his own bills and financial situation.
Of course, this isn’t to say that you wouldn’t step in if your child had a serious financial emergency, but if she just needs some extra spending money in her late 20s, she should be on her own.
Teaching your children how to be financially independent in her 20s will go a long way toward helping you preserve your own retirement. And look at it this way–you’re kids will probably be glad that you’re financially self-sufficient when you retire.
What other suggestions do you have for teaching kids financial independence?
Amanda A says
Great article. My parents have done the majority of this with me, and I would definitely say it has helped. I’m graduating from my major with zero debt (my parents did help with this to the tune of ~$40k, but they had planned for it, and I got scholarships to pay the other half). I also worked, which that money did not go to schooling, so I have more than $10k in savings right now, to help with my year off before grad school, and then with grad school as well.
The only thing I’m not entirely sure I agree with is the co-signing of a loan. While leases are different than loans, I ran into an issue recently where I couldn’t get an apartment lease without a co-signer. Because of that, I ended up in a more expensive place that would allow me to not have a co-signer. I had enough in my bank account to pay the lease in full at the start, but they wouldn’t allow me on a lease without a guaranteed income or a co-signer. Sometimes that first step is hard. So while I think it’s a relatively good idea, all I can see is me trying to get a loan for grad school, and needing a co-signer, even though I know I can pay it myself.
I wouldn’t have been able to attend college had my parents not consigned my loan. I was 17 and didn’t have any credit at the time. I graduated in may of 2004 and paid the loan off in full by December 2006- $25000!!!! I worked two jobs and 65 hours a week to pay it back quickly, and I’m glad I did. Now that I’m 31 with two kids I wouldn’t want those payments.
Some day our two kids will want to go to college (I hope! ) and I will co-dog an educational loan for them.
I would not cosign a car loan, home loan etc. but I believe in the power of higher education. And thankfully so did my parents.
There are a lot of parents out there that go out on a limb for their child and do give them money for everything and a half their heart desires. However, I feel that back in the days when kids were cut off at 18, it was a much simpler time and you didn’t really need a lot of help from your parents. I’m personally thankful for the money my mom gave me for college because it was above and beyond my meager means at the age of 18.
But it definitely makes sense to talk to your child(ren) about what they should expect at the various ages as financial support, so they know to prepare ahead of time and it doesn’t take them by surprise. It also means that parents should be prepared to talk about it and stick to what they say they will do. It would be even worse if the parents don’t stick to what they say and have gambled away said amount and have nothing left for when the due date comes.
Great article – and very important info. I had to tell our youngest (whose undergrad we paid for in full) that we were not in a position to pay for his law school. Damn near killed me to have to do that, but we’re looking at paying off the mortgage and retiring. Spouse would have jeopardized our retirement to help him out. I won’t and I just told him that straight up. We’re going to help a tad to get him started, but he knows he’d better be working every chance he gets (which he can’t do his first year). It’s really hard to tell your kids “no”, especially when you see them working really, really hard to reach their dreams. But, it is the responsible thing to do, imho.