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It’s time to stop giving money to your grown kids

Adult children accustomed to having Mom and Dad give them $200 here, $500 there may be in for a rude awaking. Cutting the children off is high on the list of actions parents are willing to consider to shore up their own retirement nest eggs.

In our most recent study, Finances in Retirement: New Challenges, New Solutions, we asked Americans which trade-offs and course corrections they’d be willing to make for a range of life priorities. When it comes to family, the top two actions people said they would be willing to consider are to “educate family on ways to be more financially independent” and to “cut back on financial support to children.”

Specifically, 84% of those surveyed said they would like to educate their family on ways to be more financially independent, while 70% said they would consider cutting back on support to postcollege children.

Having to live off of what you earn and live within your means may be one of the best lessons in life a parent can offer an adult child.

Among those Americans who give their adult children postcollege financial support, the average amount given is $6,800 annually, according to the study, a four-year, 50,000-respondent investigation into the changing lifescape of retirement conducted by my firm, Age Wave, in partnership with Merrill Lynch. And parents are gifting that money just as they are facing their own retirement head on.

If that money were, instead, invested in their own retirement, it could really add up. Redirecting the money could also empower young adults to be financially independent and help free them from the possible burden of helping their parents out financially later in life, if those parents didn’t save enough for retirement.

Also read: Give your kids and grandchildren this financial quiz

Consider a 50-year-old couple with a 22-year-old son just finishing college who plan to work until age 65. If they stop giving him, that, say, annual $6,800-per-year in financial support and instead set the sum aside for retirement, they’ll end up with an additional $102,000 in their retirement pot. And that’s if they just set the money aside. The amount could be larger if they invest the money and factor in any investment returns, compounding or interest.

But what about their son? What is the cost to him? It’s true that financial help might make his transition to adult life easier in the short run. But this is a critical time to build confidence in a variety of parts of life, including around money management. Having to live off of what you earn and live within your means may be one of the best lessons in life a parent can offer an adult child. Rather than enabling, we are empowering.

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Our study also uncovered Americans’ greatest fear about retirement as it relates to family: being a burden on family members as we age. Sixty percent of middle-aged and older Americans said that was one of their greatest worries. When asked what it means to be a burden, they said they’re worried not only about needing physical care, but also about interfering with the lives, finances and emotional well-being of family members.

Supplementing our young adult children might seem like a huge help to them now. But in the long run, perhaps the greatest financial gift we can give them is to be able to afford our own retirement and the possible need for care in retirements that can last 30 years or more. The last thing many of us want is to have to turn to our children for financial help in their 40s or 50s — when they will be focused on paying mortgages, saving for their children’s college fund and funding their own retirements.

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