In a perfect world, your children will learn sensible financial practices and how to manage their money throughout their childhood and teenage years. As adults, they’ll be capable of making an adequate income and will be responsible with this money.
But let’s face it, life’s not perfect, and many children don’t learn these lessons for one reason or another. Or, they may have great money management skills, but life has thrown some tricky situations at them and they’re stuck in a money-less rut they can’t get out of.
Talking to your offspring is the first step with anything related to finances. Having open and honest conversations around finances with your children from the start will be the key to maintaining a healthy relationship with money, and not letting finances become an issue. Financial dependence is a worrying situation with adult children, and the best defence is increasing the financial responsibility of your children as they grow up.
Despite all best intentions, many pre-retirees are faced with a situation of having to help an adult child financially. Is this something you should do, or will it only hinder them in the long run?
If you do find yourself in this position, there are a few things you need to consider before you make any decisions. Some of these include:
- Identify how your son or daughter found themselves in this situation. Was it self-inflicted through being irresponsible with their money, such as a gambling problem? Or was it something beyond their control, such as medical expenses? This might help you make the right decision.
- Can you afford to help your son or daughter? Will lending or giving them a large amount of cash affect your ability to retire comfortably?
- Are you setting a precedent for the gift or loan? Agree to some limits and boundaries that are applicable to all your children, not just those in need at the time.
- Are you empowering or enabling them? Consider whether it’s simply a challenging period of time on their lives, or if they truly don’t have the skills to manage their own money. Helping them to learn and understand how to get their finances back on track will be beneficial to you both.
- If you do help, be clear about expectations. Is it a gift they can keep or a loan that needs to be paid back? What is the repayment schedule? Put it in writing and make sure it’s adhered to.
- Gifting money can be a good, tax-free way of helping children when they need it – but only if you can afford it.
- There are other ways to help that don’t involve you giving them money, such as acting as guarantor on a loan.
If you believe that helping your son or daughter financially is the best decision for everyone, and you can afford to do it, then there’s nothing wrong with that. If you’ve bailed out your child financially before and they haven’t learned anything, perhaps it’s best to let them be responsible for their own choices in life.
Ultimately the decision is yours, and nobody knows your family better than you do. If you’d like some advice about your particular financial situation, we’re here to help. Call us on 02 9241 2575.