January 16, 2020
Family has always been at the heart of the American Dream. We work, we strive for the sake of our family. We want our children to have endless opportunity, to be free to achieve and create and flourish. We want our parents to enjoy good health, to reap the benefits of a lifetime of hard work and sacrifice on our behalf, to live out their golden years free of financial worry.
Yet love can lead us to make poor money decisions that will make it hard, if not impossible, to achieve financial independence. We cosign loans for loved ones who can’t afford the loan, putting our own finances at risk. We offer financial help even when it means jeopardizing our own financial security. We can’t bring ourselves to say no when it comes to our children. I respect that those choices are rooted in deep love and the sincerest of good intentions. But they are counterintuitive.
How your family spends and saves money, and how money flows through the generations of your family, needs to be revisited in order to achieve your long-term financial goals. For many of you, the challenge is to rein in your family’s spending. For others, the task is more complex and far ranging; it may require a reassessment of your very way of life— an honest reappraisal of your immediate needs and a realistic reworking of your priorities in the decades ahead.
I talk a lot about the importance of family finances in my brand-new book, The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime, available for pre-order now.
Here is a peek at Chapter 2: Family Ties: How to Help the Ones You Love Without Hurting Your Retirement:
The first step in building a secure retirement is to make sure that your heart is not making all the financial decisions.
And when it comes to your family, your heart is always, always, always engaged.
A parent never stops being a parent. Adult children are always and forever your “kids.”
A parent who becomes a grandparent is blessed with the opportunity to love and nurture a new generation.
As precious and enriching as those relationships are, they can also become pressure points as you near retirement and once you are retired.
It is a very tough thing, I know, to step away from your decades-long role as provider. It is a fundamental, defining aspect of your identity. We all know that financial independence is an important milestone for an adult child that carries with it the confidence and strength to navigate one’s way through life. Yet there is no clear playbook on when—and how—this should happen.
Wanting to provide financial support for adult children and grandchildren comes from an instinctive parental urge to help.
But what often gets lost in that decision is the calculation of whether helping your kids today will burden them in the future. A big problem is what I call the “it’s only” syndrome. It’s only $100 or $200 a month to help with the rent. It’s only an extra $20 a month to keep paying for their cell plan. It’s only $200 to help with the car payment or repaying their student loan debt. It’s only $1,000 a year to help send the grandkids to camp.
I want you to add up all the ways, big and small, you continue to provide support to an adult child, plus the money you spent in the last year on grandchildren. I think you may be shocked to see how much “it’s only” is costing you every year. In my experience, it can add up to thousands of dollars—many thousands if there are several kids and grandkids.
I am not going to tell you to cut off a child who is struggling to make rent. But helping with a loan for a new car, continuing to carry an adult child on your health insurance and cell phone plan just because, and kicking in money for vacations: that’s a hard no, in my opinion. When these parents tell me they don’t have money to save for retirement, you know what I say? “Well, of course you don’t!”
Let’s focus on the opportunity cost of helping your adult kids instead of helping yourself. Let’s say you’re providing $300 a month in various types of parental aid. If you instead saved that $300 a month for the next 10 years, assuming a 5% annualized return, that’s going to grow to nearly $47,000!
Now ask yourself how scaling back that spending could keep you financially independent into your 90s. Is it the money you think you don’t have for purchasing long-term care insurance? Is it the money that is keeping you from paying off your mortgage before you retire? Is it the money that can make it possible to delay Social Security until you are 70 so you can receive the highest possible payout? Is it the money that, if saved today, could help pay for at-home care down the line, rather than needing your family to step in, financially or as a caregiver?
I hope that viewing these questions from the perspective of future financial independence will motivate you to reconsider the type and magnitude of support you can provide for your family.