Parenting—there’s nothing quite like it.
It’s said that once you’re a parent, you never stop, and in terms of spending, this proverb might just hit the nail on the head.
A study, Modern Parenting, by Merrill Lynch and Age Wave found that nearly 75% of parents put their child’s needs before their own, leading to decreased retirement savings. Where parents are shelling out nearly $500 billion annually for their adult kids, they aren’t even saving half of that—$250 billion in retirement accounts.
This discrepancy is concerning as parents move into retirement and rely on their nest egg for living costs, travel, healthcare, taxes, lifestyle considerations, and other future expenses.
How can parents be intentional about giving to their children without sacrificing their retirement future?
The secret: make strong financial decisions.
Know the Difference Between Giving and Sacrificing
Giving and sacrificing exist at opposite ends of the spectrum—though it’s easy to conflate one with the other. Many people find fulfillment in giving their time, energy, and resources to the people, places, and things that matter most like volunteering, charitable donations, family, etc. This makes giving more about sharing your resources as opposed to going without.
Sacrificing, while not all negative, means giving up something so that another person can have or experience it. Sometimes sacrificing your own needs, wants, or wishes for a spouse or loved one can be enriching, but too much of it leads to neglect of yourself and your needs.
82% of parents surveyed in the Modern Parenting study reported that they would make a major financial sacrifice for their adult children like drawing down savings or altering their lifestyle—25% were even willing to take on debt to help.
When faced with these challenges, it’s important to remember the difference between giving and sacrificing. Ask yourself,
- Do you reasonably have the funds to help your children?
- Are the expenses ongoing or one-time?
- Have you set clear boundaries and expectations?
- Will the money impact your relationship with your kids?
- Is the expense planned or spontaneous?
- Will the funds alter your retirement plans?
- If you sacrifice too much now, will your children be able to support you in later life?
As parents, it’s critical to prioritize yourselves—though that may seem counterintuitive at first. Giving financial support when it doesn’t make sense for you could lead to resentment or tensions later in life. It could also impact the way you view your finances.
Abundance vs Scarcity Money Mindsets
Your money mindset conveys your general attitude toward money—the way you view, use, and experience it. When it comes to giving vs sacrificing, let’s break it down simply.
- Giving comes from a place of abundance.
- Sacrificing comes from a place of scarcity.
A financial mindset of abundance gives you more freedom and confidence to use your money in ways that enhance your life and the lives of others. In abundance, you aren’t concerned about a bottom line and can share your resources freely with yourself and others.
A scarcity mindset, on the other hand, can lead to financial anxiety and concern about having “enough” money to live in the future. With retirees already stressed about outliving their savings, it’s prudent to exercise serious caution before dipping into retirement funds you can’t get back.
Put Your Retirement Plan First
We’ll continue to shout this message from the rooftops—your retirement plan should come before financial assistance for your adult children whether it’s bailing them out of debt, cosigning on a loan, paying for a wedding, chipping in on the downpayment of a house, etc. Retirement needs to take top billing. Why?
Retirement is the largest savings goal of your life. Between inflation and increased longevity, retirees will likely need more savings to sustain their lifestyle for 20+ years. While everyone’s idea of a dream retirement differs, it will still be costly, and withdrawing a few thousand dollars here and there can really add up over time (especially considering missed compound earnings).
Think about it like this: you can get a loan for several things—a car, college tuition, home improvements—but you can’t get a loan for retirement. No bank will loan you money so you can live on the beach or snowbird or travel more. It comes down to building healthy long-term financial habits that support your vision for your retirement.
Turn “Versus” Into “Prioritize”
What does it mean when we say to put your retirement plan first? Does that mean you can’t help your kids out at all?
No, it certainly doesn’t mean that you can’t have a financial role in your child’s life if that’s something important to you. Perhaps you have been saving their whole life for a wedding and are happy to contribute the amount saved or maybe you want to buy your kid a new fridge for their first house.
As long as you aren’t dipping into your retirement savings (or withholding savings) to do it, those financial gifts can be something you consider. You don’t need to pit these ideas against each other, they can work in harmony so long as there is balance and strategy to back it up.
Visualize Your Dream Retirement
When it comes to prioritizing your retirement, never has the phrase it’s easier said than done rang more true. While all of these ideas are great in theory, it’s challenging to put them into practice.
One tip: visualize your dream retirement. For you, retirement may still be 5-10 years in the future. It’s so easy to let that future vision fade out of focus. Bringing it back to the forefront of your mind can reaffirm your plan, and give you the confidence to stick with it.
Picture your retirement.
- Where are you living?
- Are you snowbirding?
- What’s your daily routine?
Open up your written financial plan and take a look at all of the elements you’ve worked so hard to secure for yourself and your family. Let your plan and your professionals guide you as you make challenging decisions leading up to retirement.
Set Healthy Boundaries and Expectations
In families, money can come with many assumptions. It’s critical that your kids don’t expect you to pick up the tab for their expenses as they grow into adulthood.
While the pandemic has put young adults and their parents in unique circumstances—52% of young adults live with one or both parents according to Pew Research, the highest levels since the Great Depression— healthy boundaries concerning money should still exist.
Open, honest, and transparent money conversations with your kids are essential.
- How often are you comfortable providing financial assistance to your children?
- To what extent are you able to help?
- If your kids live with you, how can they contribute to the household? (Rent, household chores, take charge of personal expenses, etc.)
- Have you discussed what the money means for you and your kids?
- Do you have certain expectations for the money i.e paying it back, interest, etc.?
- Do your kids have certain expectations for the money?
- Is the money coming from a place of abundance or scarcity?
- Are there other ways to support your kids alongside or without financial assistance?
You might not get through all of these conversations at once, but be sure that you open up the line of communication, especially where money is concerned.
Money can be a challenging topic. When it comes to financially supporting your grown children, it’s critical that you give from a place of abundance, that you don’t sacrifice your future lifestyle, and that you maintain honest communication with your children.
It’s also important to consider the long-term implications of bailing out adult children from financial harm. Will the money do more harm than good? Ask yourself: when did you learn your most important and valuable money lessons? Was it after a mistake that you worked through and vowed to never happen again? How did you overcome financial challenges? If you were bailed out, would the lesson be as valuable? Allowing your children to make, fix, and learn from their mistakes, while incredibly difficult as a parent, might be the best teacher!
We love talking about money at TFS and are passionate about helping families build wealth in meaningful, values-based ways. Whether you’re wondering how to start this conversation with your kids or just want to check in on your retirement plan, get in touch with our team today.