Once you become a parent, you start the process of worrying about your children’s well-being. It doesn’t ever really change, even as they get older and become more independent, you still worry. Parents have an innate instinct to want to charge in and help any way they can when they see their children in a crisis. What happens when your adult child is facing financial trials?
When should you step in and help and when should you leave it alone? If you make the decision to help, it’s vitally important to the ongoing health of your relationship to establish some rules and to protect your financial well-being.
How To Help Adult Children Facing Financial Trials
The empty nest isn’t what it used to be. The financial and housing crisis of 2009 and the rising costs of student loans have more adult children turning to their parents and grandparents for help.
It used to be considered taboo to live with your parents, but since 2010, 52% of college graduates, despite having a job, are living back with mom and dad. They know the house they grew up in is going to be far superior to anything they could afford, so it seems reasonable, almost preferable.
If you’re a parent who is witnessing their adult child struggling with a financial challenge, and you want to help, here’s some rules you should consider.
1. Everyone Contributes
What this means will ultimately be up to you, but you should consider charging your child rent. If they’ll living in your home they should be contributing to the family finances. If they are unemployed, you can provide a grace period, but once they are working, have them make a rent payment to you each month.
If you feel uncomfortable charging your kid, you can always put it aside into a savings account for them, but I wouldn’t tell them you’re doing this. They need to feel responsible for paying rent, and if they know you’re putting the money away, they may ask to forgo the payment altogether. When they move out, you can hand them a nice little nest egg.
2. Make Sure Everyone Has Health Coverage
People get sick and have accidents, and nothing will ruin someone faster financially than these two issues. It’s imperative that everyone in the family have health coverage.
As part of the health care reform act of 2010, if you’re new roommate(s) doesn’t have an employer-sponsored health plan and they are under 26, you can keep them on your plan until they turn 26.
If they are over 26, they can log onto heathcare.gov and look for plans based on a number of factors. They can determine out of pocket expenses, and can even find out how much their individual or family subsidy will be.
If they don’t enroll, they could face a fine of $695, so it’s important they get coverage right away to avoid these penalties.
Read: The Joy of Saving
3. Help Them Establish A System for Paying Off Debt
More than likely, no matter their age, your family member has moved back in with you because they have too much debt. The debt could be in the form of student loans, unsecured credit card debt or both. Either way, help them develop a plan to paying off their debt.
They can use any method they like, but I recommend the snowball method of eliminating debt because it helps them pay off the debt faster.
4. Make Sure They Are Saving Too
Someday your adult child will move out again and when they do it’s important that they have saved an adequate amount of money to prevent having to return to your home.
They can save and get out of debt simultaneously if they follow a plan. Savings as a means of getting out debt ensures that as they are paying the debt, they are thinking about their financial well being too. It’s like the old phrase, “Make sure you pay yourself first.”
By putting their savings needs first, they are building up their emergency fund and long term savings. Both crucial savings accounts they’ll need as they move forward and eventually out of your house.
When They Don’t Want to Move In But They Do Need Help
Many families found themselves in dire financial difficulties after the economic collapse of 2009. If your grown children come to you asking for financial help, you need to consider a few things before you hand over any money.
Can You Afford to Help
All parental instincts aside, you need to look at your financial situation honestly and see if you can afford to give your children the money. Will it set you back? Will it put you into financial straights by handing over cash to them? The last thing you want to do is put yourself in financial risk.
Is It A Short Term Or Long Term Problem
Will an infusion of cash solve a short term problem or are their financial issues long-term? If your family member is having trouble paying the mortgage, that’s an ongoing problem an infusion of cash won’t necessarily fix. They need to look at other options like downsizing, loan modification, or moving back home until they can afford a mortgage. Giving them money for a long-term problem could be throwing good money after bad.
If on the other hand giving them money to pay off credit card debt makes the difference in them being able to stay in their home, then it might be a good idea.
You must feel confident that giving this money won’t put you in a financial hole.
In the end, only you can decide if allowing your children to return home, or if giving them money will ultimately help them financially.
Whatever you choose, keep these rules in mind and implement them not only to protect yourself but to help your family member gain control over their financial circumstances.