Why 'parents are hurting their own finances' by supporting their adult children
Thinking about helping your adult kids with some money here and there? Not a great idea, according to Ted Rossman, Bankrate's senior industry analyst.
According to a new Bankrate survey, 68% of parents have made a financial sacrifice for their adult children. “I worry that parents are hurting their own finances because, hey, life is expensive for them too,’ Rossman said. “And if you're going to finance a 30-year retirement and pay for health care costs, I mean, there are some risks to cutting into your own nest egg.”
To be sure, said Rossman, young adults face steeper economic challenges than their boomer parents did at their age. “Student loan burdens have grown, rent costs are way up, (and) barriers to entry for the home buying market are much higher now,” Rossman said.
Still, Rossman argued, Americans might be coddling their children and, he added, "I do think there are some downsides."
For one thing, Rossman said, middle aged and older parents face their own challenges such as credit card debt and increased health care costs. The Bankrate study showed that around half of parents have sacrificed their emergency savings for their children.
Another downside: Rossman said parents might be jeopardizing their relationships with their children by giving them excessive financial support. Citing another Bankrate study, he said roughly half of those who lent money to family saw something go wrong.
“They lost money, their credit score was damaged, the relationship was damaged,” Rossman said. “You want to be mindful of those potential consequences.”
Instead, Rossman advised parents to prioritize their own financial needs over those of their children. “Remember that thing on the airline, though, about put your oxygen mask on before helping others?”
Some advice from Rossman: Ask live-in children, for example, to pay rent, groceries, and utilities. He suggested that parents could even take such funds and give it back to their children later as part of a security deposit for an apartment or a down payment on a home. Also: Parents should ween adult children off cell phone plans and health and car insurance.
“At some point," he said, "hopefully in the not too distant future, you've totally cut the cord.”
Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
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