Finance Blog
When to Cut Off the Kids
With the cost of college rising and the economy still hindering young graduates’ ability to stay afloat, more parents are raiding their retirement and savings to help their kids pay for life on their own.
National financial planning firm Ameriprise Financial asked more than 1,000 baby boomers if they provided some level of financial support to their adult children and 93 percent said they are helping out in some way. That number hasn’t been significantly impacted by the recession, either—in a similar survey conducted in 2007, 92 percent of baby boomers said they helped their adult children.
What has changed, however, is how this financial aid is impacting the parents themselves. In the same survey, only 24 percent of those parents said they were putting away money for their own future. That number is down 44 percent from the 2007 survey.
This means that while parents have been financing their adult children for some time, they are increasingly doing so at the expense of their own financial comfort, said Cathy Pareto, a Miami-based Certified Financial Planner.
Pareto has worked with clients for more than 15 years and sees this scenario play out time and again. Recently, she said, she met with a father who had successfully secured his retirement when his son asked for help with medical school.
“He told me, ‘I feel like I should be helping him, and he doesn’t want to get these really high-cost loans, and I’m feeling some pressure from my wife, so what do I do?’” Pareto said. “They had just enough for their retirement, and they didn’t have enough to help pay for their son’s second education.”
How parents help their adult children financially—and when to stop
Parents are helping their children with their education, car payments, car insurance, and bills. They are and even helping their children buy homes and allowing them to move back into their homes rent-free.
On average, parents have given their young-adult children (ages 19 to 22) about $7,500 a year, according to a new study by the University of Michigan for the MacArthur Network on Transitions to Adulthood, which conducted 2,098 interviews between 2005 and 2009.
That $7,500 a year won’t even come close to paying the cost of tuition. Annually, college costs an average of $17,131 a year for an in-state four-year public school and $38,589 annually for a private-college education, according to the College Board.
Plus, the rate of increases in college tuition far outpaces the rate of inflation, leaving many parents who help their kids with college strapped for cash, even if they did start saving early.
When thinking about helping your adult children, Pareto suggests the same she told her client whose son needed help with medical school—at some point, you have to say no.
“You probably feel compelled to give your kids everything you can—maybe more than you can —because you’re their parent,” Pareto said. “But honestly speaking, at some point you’re doing a disservice to yourself. You’re putting your own security at risk. So what kind of values are you really showing your child?”
Instead of meeting the demanding price of college or relenting whenever the kids request money, parents need to instead determine what they can comfortably spend on their child’s education or what help they can offer with costs like rent or car payments, if any.
In lieu of giving your kids cash, give them some of that hard-earned life knowledge. Help them learn how to read their credit report and credit score, figure out where their income will come from, whether it’s scholarships, loans, or jobs, and what their bills will be. They have to figure it out sometime—the earlier the better—so you can enjoy your retirement when they’re gone.
Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.
3 comments
Leave a Comment
We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.
Some other factors to consider when commenting:
- Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
- All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
- We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
- Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
- Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
- Stay on topic. Your comment should be concise and pertain to the specific post in question.
- Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
- Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.
RSS Feeds
My son went through a bad divorce. I vowed to help him get back on his feet as he was literally homeless. I drained a small savings account to pay for a divorce attorney, paid for food, sometimes rent. Christmas for my two grandchildren year after year.
Ended up with severe credit card debts. My dilemma made no difference to him.
I never came in contact with him without him asking for money for gas, a bill that was overdue….Always some hard luck story.
After 10 years I was totally being taken advantage of by my own son.
I would plead with him and tell him I was doing without necessities.
It fell on deaf ears. He did not care.
My sanity was in jeopardy, not to mention my marriage to his step father.
The situation did end; also my relationship with my son. We no longer have a relationship and do not speak.
I wish things could be different but the only way to end a bad situation, save my sanity and protect my health was to say “No”
to his demands.
My savings are long gone. I am retired but living from check to check with help from my husband (I could not make it without him. Our marriage was severely strained).
I rarely see my grandchildren and miss them tremendously, but trying to cope….
Set rules w/ children – regardless of age.
1) Keep assets out of one’s name.
2) Pre-neptual agreements are normal & perfectly acceptable.
3) Do not co-mingle assets
4) Carry liability insurance
5) Buy only what your need – NOT what you want. Buy w/ the long term in mind. Don’t be cheap.
5) Gold diggers (Smarmy salespeople, floozies, etc…) are everywhere, beware!
5) Remember the rules & follow them religiously.
John, These are all great tips. I’m sure our readers will find it useful. Thanks for sharing with us.