In late 1997, a regional investment management firm held a well-attended forum for its ultra-high-net-worth clients on “The Responsibility of Wealth.” The highlight of the forum, and the focus of several expert speakers that day, was the importance of careful planning for the transfer of wealth to a family’s younger generations.
Attendees were advised not to give large lump sum gifts to their young heirs and taught strategies to avoid creating what are now derisively known as “trustafarians” - a slang term for the aimless adult children of wealthy parents who simply squander the family fortune they’ve been gifted or inherited.
Families with millions of dollars are not the only ones who must sometimes confront the dilemma of how to handle financially dependent adult children. From both an emotional and practical perspective, this can be one of toughest things to do when it comes to managing your assets and your relationships.
Financial dependence on one or both parents can start simply enough, such as when a child graduates high school and decides not to attend college, or goes to college only to return home upon graduation. It can happen later in life as the adult child needs your financial help after a significant event like losing their job or going through a divorce. No matter how it begins, many of these scenarios create stress and resentment for all parties involved. How can you support your child without spending everything you’ve worked so hard to save? How do you preserve your plan for a secure retirement?
The Importance of Parental Cooperation
The first and most important step is to have a discussion with your spouse (or the other non-spouse parent) to make sure you are on the same page. Any plan that doesn’t have full parental buy-in is destined to fail, so you must commit to working together. Otherwise, the adult child will be able to pit parents against one another, purposely or not, to continue the cycle of financial dependence. This can be extremely difficult in cases of divorce, making open communication even more critical. If you are a single parent, you must commit to making a plan and following through with it.
Making a Plan for Financial Independence
After parents have agreed on the necessity of ending financial dependence, it’s time to involve the adult child in making a plan. The person in question may have no idea that their financial dependence creates additional stress for you, or that it could jeopardize your carefully-crafted plan for retirement. It’s important to emphasize that financial independence for your capable adult child is both an expectation and an achievable goal. At the same time, you should decouple the love you have for your child from the financial support you provide.
While constructing a plan with your adult child, include specific tasks, goals and dates. Ask questions and give your child a sense of responsibility and control over the process, thus encouraging their ownership of the outcome. Even if you have already done so previously, this is a good time to educate your child on finances, making a budget, living within their means, managing debt, and the freedom that comes with being truly self-sufficient.
Even the best plans can go awry. Don’t give up on the goal of financial independence for your adult child because of a rough patch or unexpected derailment. If something isn’t working, re-visit the plan, speak honestly and frankly, and find a way to get the plan back on track. In the long-run, your relationship will benefit as both you as a parent and your adult child will be happier, more secure, and able to communicate openly without being contentious about money.
Speak with an advisor
Ending the financial dependence of an adult child can be difficult. If you would like to discuss ways to help your child develop his or her own plan for financial stability, or if you don’t know where to start, schedule a quick 15-minute phone call with an advisor at Retirement Advisors of America to learn more about your options.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.