The Financial Risk of Helping Adult Children

You saved your entire life for the day you can retire. You brought up your children and you hope that they enjoy productive lives. Unfortunately, one of your children never seems to grow up — dropping out of school, continually getting into trouble. You feel you must keep helping this kid, but can you afford to?

The help that you gave so far cost you lots of money, time, and energy. It’s good you spent the time and energy. The money, though, might turn into a factor that changes your ideas about life when you retire.

If you have a child in his or her late 20s or early 30s who just doesn’t seem able to start life, how you handle this dilemma is your choice. There is no right answer. My only suggestion: Make the choice a conscious, informed one.

Sure, your children mean much more to you than just money. But if your child is unable to stand on his or her feet economically, this young person simply becomes a financial drain, especially if you still write the checks.

Granted, some of today’s sprigs carry unprecedented financial burdens. According to The Wall Street Journal, for instance, the class of 2014 entered the big bad world already saddled with the most student debt ever, an average of $33,000 each. Young adults also routinely lug around more credit card debt than they do emergency savings.

You have problems, too. Someday you’re going to get too old to work.

If you spend your retirement money supporting an adult child, you need to realize that the chance of someday receiving support back for your money is slim. Even if it doesn’t turn out to be the case in some distant decade, you must count any cash to an adult child as gone forever and plan accordingly.

Hands holding money

Source: Thinkstock

You’ve probably read about loans to family and friends, with reason. More than four out of five people would lend money to a family member who has fallen on hard times, according to a recent poll at Almost half the respondents would help family or a friend pay medical bills or even everyday expenses such as rent, utilities, or groceries.

I believe these loans often come with a nasty surprise. No repayment.

Maybe a more laborious road to riches works better for everybody. Has your child tried a peer-to-peer lending company like Lending Club or Prosper? At least put the loan agreement in writing.

Just as important: Is your money really doing your child a favor? Sometimes tough love is best; there looms a time when you won’t be able to help anymore. What will happen to your child then?

If you really stepped back and took a good look, discussed this tough issue with your spouse, and decided to support your adult child, go for it. Such an arrangement resembles many other parts of parenting: It’s really all about what’s right for you and your family.

Support might be a good thing. Entitlement isn’t. Make sure your choice fits with what you think important and you will truly do the right thing for you and your child.

Follow AdviceIQ on Twitter at @adviceiq.

Josh Patrick is a founding principal of Stage 2 Planning Partners in South Burlington, Vt. He contributes to the NY Times You’re the Boss blog and works with owners of privately held businesses helping them create business and personal value. You can learn more about his Objective Review process at his website.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

More from The Cheat Sheet