Parents are and always have been an immediate financial resource for their children, even if their children are grown adults in their 20s, 30s and even 40s. Regardless of relation, parents should not be viewed as a bank. Part of being an adult is independence, financial and otherwise. Here’s how to close the Bank of Mom and Dad.
Regularly providing money to adult children can quickly dissipate retirement savings. If you don’t eventually close the Bank of Mom and Dad, you may have to rely on your adult children to financially support you in the long run. Not a good cycle to be in, and easy to forecast the impact it will have on the family’s next generation of children. Breaking this cycle is hard to do but it must be done. Here are some tips to make the break!
Set a date and stick to it
If your adult children still reside at home, it’s time to plan their exit. Set a date and call it the “Move Date.” Evict your children if they squat. Try to explain that this is for their own good. Good luck with that.
Whether or not your children are actually living with you, once you pass the Move Date, cut off all monetary support to adult children. It is quite literally time to close the Bank of Mom and Dad. No more cash “loans.” No more covering expenses. Period. Children must, at some point, learn self-sufficiency.
Encourage financial literacy
America’s education system teaches little about personal financial management. Whether you’re investing in a retirement plan or buying your first home or car, you should learn about it first. Do this so you can avoid making bad decisions. You can explain these processes to your kids, but you can’t understand it for them. Resist the urge to take over their finances. Allow them to make mistakes, but encourage financial literacy. A little research goes a long way.
Everyone needs a budget
Adults should devise a budget on total household income. Regular support payments from parents should not be a part of this budget. A budget includes student loan, rent, utilities, and credit card payments. High-interest credit cards should be paid off as soon as possible. There are many personal finance apps out there to help you with this. Encourage your kids to use them!
Start an emergency fund
Advise your adult children to build an emergency savings fund, which will allow them to absorb financial shock without sacrificing long-term financial goals. It’s recommended to save enough to cover 3-6 months of living expenses. Encourage your kids to allocate some amount to an emergency fund each paycheck. Discourage your children from thinking of you as a financial safety net.
You can still give your kids cash on birthdays or other holidays. Nothing is wrong with that. Hopefully, your children will not rely on those funds to balance their budgets. Instead, hopefully, they’ll use it to bolster their emergency savings funds.
A recent estimate put the cost to raise a child in America, not including college, is more than $230,000. Our parents raise us, spending 18 years footing the bill for everything. We should honor and respect our parents by not constantly tapping our accounts at the Bank of Mom and Dad. And parents should resist the urge to “rescue” a child facing a short-term shortfall. Your children will have increased your sense of confidence and personal value. Close the Bank of Mom and Dad forever and it will have a positive impact on the entire family.