Protect Your Wealth: Close the Bank of Mom and Dad
Do your adult children still rely on you to finance their lives and lifestyles? It is likely about time to close the bank of Mom and Dad.
One of the most important keys to your long-term financial security, as well as the financial accountability of your children, is how quickly you eliminate their dependence on your financial resources, as they transition into independent adulthood. This is especially important for “sandwich generation” families, led by people taking on financial and care giving responsibilities of aging parents, while simultaneously funding college and other expenses for their children. What is often neglected in this scenario is planning and saving for retirement. The more prepared children are to take responsibility for financing their lives and lifestyles, the more resources their parents can free up to see to other needs, including retirement savings.
While it may spark disappointment and even resentment, you need to be ready to close the bank of financing for your adult children, for their sake and yours.
Here are three things to focus on:
1. Don’t Be Their Emergency Fund
One of the first rules of money management is to create an emergency fund equal to at least six months of your household expenses. I call this an “income interruption fund,” which is to be touched only in cases where your income is lost or significantly reduced—for example, because of a layoff or a serious illness. The idea is that this money will buy you time by helping you keep up with your bills and other obligations until you can replace the lost income.
Resist the temptation to use your emergency fund to deal with the emergencies of your adult children, who should be putting away savings in their own emergency fund for such situations. Just because the money is sitting idle, does not mean that you can afford to spend it. Close the bank.
2. Don’t Take on More Debt
Do not take on additional debt, such as maxing out your credit cards or assuming responsibility for a loan, including as a cosigner, to make purchases or solve problems for your adult children.
Once your children reach the age of majority, it is no longer your responsibility to finance their lifestyles, not even the ones they enjoyed under your parental authority as minors. As you move closer to retirement, you must make reducing debt, especially credit card and mortgage debt, a major priority, and don’t increase it. Close the bank.
3. Don’t Put Your Own Financial Stability At Risk
In order to really close the bank, it is critical that you are able to say the following words without stuttering or apology: “No. I can’t afford to do that.” It helps to practice saying this on your own.
Your children may react as if you are suddenly speaking an extraterrestrial alien language, but repeat it enough, and they’ll eventually recognize it as English. To hold your ground, you need to be conscious of the emotions you must keep in check, to control your finances: fear/anxiety, anger, sadness/depression, and guilt.
It also helps to be clear on what the definition of “I can afford it” means:
- You can give/lend this money, and still pay all of your bills and obligations in full and on time.
- You have a fully funded emergency fund, with at least six to nine months of household expenses saved.
- You are able to make the maximum legal contributions possible to your retirement account, and you are on track to meet your retirement savings goal.
- You can extend the loan or financial gift without borrowing money or taking on additional debt.
If you can’t say “yes” to all of these statements, then the financial gift or loan in question will put your financial health at risk. Work with your adult children to find another solution to their problem or another way to get what they want. Or just say, “No.” Again, close the bank.
When you spend money, cover expenses, and otherwise provide for the financial needs of able-bodied adults, you create what I call “adult dependents.” These are otherwise capable people, who are disinterested in providing for themselves and may even resent having to do so, especially if they know others willing to do it for them. Many people in your life may fall into the adult dependent category, common among them, adult children. To avoid creating or to, at least, stop rewarding that dependency, you must close the bank of Mom and Dad.
Check out EmpoweringParents.com for great advice and resources for parents who need help dealing with their adult children.
Black Enterprise Executive Editor-at-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a relationship education initiative focused on personal growth and healthy decision-making. Follow him on Twitter at @AlfredEdmondJr.