Know What You’re Paying For
You can’t stop supporting your children without understanding exactly what you’re paying for. You may not even realize how much you’re paying each month or year until you make an itemized list. This is especially true given the aftermath of the pandemic.
A Creditcards.com poll found that nearly half of parents supported their children during the pandemic. Of those who did, 79% used funds they would have otherwise put toward paying down their own debt, emergency savings, retirement, or other long-term goals.
Most financial support went towards food, housing, and cell phone payments. While these may seem small, they can accumulate into hefty expenses over the course of a year. For example, these items are based on average prices across the country:
These expenses add up to $1,821 spent; that’s almost $21,852 per year — more than a 401(k) annual contribution limit (excluding catch-up contributions). In other words, it may be possible to max out your 401(k) after all.
These numbers highlight how parents prioritize their children’s financial well-being over their own— which can lead to substantial long-term consequences like being ill-prepared for retirement or reaching retirement with more debt than planned. It’s easy to see how quickly the numbers add up to bring negative long-term impacts.
So how do you gain control? Start by categorizing your payments into ‘one-time’ or ‘ongoing’. There is a substantial difference between paying your child’s monthly rent versus helping them pay for their dream wedding.
Ask yourself:
- What are you paying for (rent, food, insurance, clothing, entertainment, etc.)?
- How much does it cost?
- Is it a unique circumstance or are you making regular payments?
- Are your contributions helping or hindering your children in the long run?
- Can you afford the payments?
- Would redirecting those payments to other long-term financial goals be more beneficial?
- Why are you making these payments?
Answering these questions can help bring context and intent to your spending. While you may not want to kick your kids off the grandfathered-in cell phone rate — (i.e., why move out of a rent-controlled apartment downtown?)— you could consider having them pay you their portion of the bill each month.
Approaching the process from this angle gives them more financial responsibility, which is critical for developing healthy money habits moving forward.
Assess Where Your Children are at in Life
In addition to understanding where your money is going, it’s also important to evaluate the stage of life your children are currently in. Consider the following.
- Do they have a stable job or are they still looking for full-time work?
- If unemployed, are they actively pursuing work by applying for jobs, interviewing, resume-building, etc.? You want to ensure your support doesn’t make them complacent.
- Can they afford their current lifestyle? Downtown rent can be pricey and less affordable with an entry-level salary. Instead of picking up the tab, help them establish a lifestyle they can afford. Avoiding lifestyle inflation early on is an essential lesson in long-term financial wellness.
Having these conversations helps you gauge your children’s financial responsibility. Do they make healthy money decisions? Are they saving and investing toward their goals?
Every family is unique, so your situation will look different than others. You might not mind letting your recent college grad crash at your house rent-free, but you do want them to chip in for other living expenses like food and cell phone bills. The vital lesson is to understand where your children are at and gauge your payments accordingly.
Prioritize Your Short and Long-term Financial Wellbeing
No matter their age, your children are your children forever. This can make it challenging for parents to prioritize their own financial needs.
According to Merrill Lynch and Age Wave Study, 79% of parents provide financial support to their children — everything from weddings and college degrees to groceries and cell phone bills. This financial support culminates in over $500 billion spent annually, and alarmingly, twice as much as parents invest into their own retirement accounts ($250 billion).
63% of respondents also said they had sacrificed their financial future for the sake of their children. What type of sacrifice are parents willing to make? The most popular answers were taking money from their savings account, living a less comfortable lifestyle, drawing from their retirement fund, and — most surprisingly — going into debt.
While parents are keen on putting their kids first, prioritizing your own financial wellness can actually help you and your children in the long run. Remember, there is no “loan” for retirement. Most parents (70%) believe their children will support them should they eventually need it, but relying on your kids for financial support in retirement should never be Plan A.
Your retirement plan depends heavily on personal savings and investments. While Social Security and other fixed-income sources will play a role, your savings will likely comprise a significant portion of your retirement funds. Even though it can be challenging, it’s critical to make your financial future a top priority.
Putting yourself first doesn’t mean you’ll have no financial role in your child’s life. It simply means you aren’t drawing down your own resources, investing less, or taking on debt to support them. It’s all about establishing healthy money boundaries that work for you and your family.
