For better or worse, the parental habit of supporting kids financially (including adult children) is a hard one to break, including for retirees who are now living on a fixed budget and trying to keep their bank accounts healthy.
Supporting your kids financially might be a good impulse, but it can be a dangerous one too, especially when you’re relying on limited savings to make ends meet.
Here are 11 common financial errors parents of grown children are prone to make so you can avoid them.
Resolve $10,000 or more of your debt
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Lending your kids cash
It’s not necessarily a bad thing to slip your kids some extra cash every once in a while. However, offering family members a loan to finance a major purchase can have negative repercussions for your financial stability and relationship.
Ask yourself these questions before lending money: If your child can’t pay back the loan, will your relationship ever recover? And if you never see that money again, will you be able to afford long-term care, medical bills, and your mortgage payment?
If you’re pretty sure the answer to both questions is a hard no, put the relationship first by refusing to lend your kids a lump sum of cash or find a way to make more money to fund this bad idea.
Cosigning on a car
Speaking of loans, think carefully about cosigning on loans you’re not positive your kids can pay back, starting with car loans.
If your child defaults on the loan, you’ll be left to foot the bill — and unless you’re swimming in enough cash to take the loan repayment in stride, cosigning could spell financial ruin.
Funding a child’s newest business venture
Starting a new business usually requires a good deal of upfront cash. As tempting as it is to support your child’s startup dreams, resist:
There’s no guarantee your child’s business idea will pay off, and if it doesn’t, you’ll be down a retirement fund with no good way to make your money back quickly.
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Cosigning on student loans
Federal student loans don’t require a credit check or a cosigner, but private student loans typically require both. On the one hand, if you cosign on a student loan, they could qualify for a lower interest rate.
But as with any other type of loan, if your child defaults on their student loan payment, you’ll be on the hook for making payments as the cosigner.
Remember, too, that your cosigning status will appear on your own credit history, which could make it harder for you to qualify for your own loans.
Footing the bill for expensive family vacations
If you’re planning a family vacation with all the kids and grandkids, set financial expectations in advance.
Get everyone on the same financial page about how much the trip will cost, including which expenses each adult needs to cover for themselves.
Otherwise, you could find yourself paying out of pocket for everything from the hotel room to the rental car and airfare.
Paying for everyone at the table after a family dinner
Resisting the urge to cover every expense when the family is together takes practice, but it’s a necessary part of protecting your retirement.
Of course, there’s nothing wrong with treating the family to a nice dinner if you can afford it, but don’t foot the entire bill out of habit alone.
Cosigning on a house
Defaulting on a mortgage loan is a much, much bigger deal than defaulting on a car or student loan. If your child loses their job, spends unwisely, or simply can’t afford the mortgage loan you’ve cosigned on, your finances will almost certainly be devastated when repayment falls to you.
Cosigning your child’s mortgage loan is a particularly risky choice if you’re still paying off your own mortgage. Handling two mortgage payments is a financial stretch even when you’re working full-time.
Taking on two housing payments while retired probably isn’t sustainable, so steer clear of disaster by saying no upfront if your child asks for your assistance securing a mortgage loan.
Paying your kid’s credit card bill
Did your typically responsible child have a hard month, and now they can’t make their credit card payment? Helping them pay off the bill just this once could be a safe idea (as long as you can spare the cash).
But make it clear that you won’t be available to help a second time. If you know your child is the type to spend until they’ve exhausted their credit, you probably shouldn’t help the first time either:
Establishing a pattern of bailing out your kid won’t help them break the cycle of maxing out credit cards.
Giving a child an early inheritance
A typical inheritance includes the items and assets you leave behind after your death. If your child requests an early inheritance, you’d presumably give them a cut of the amount of money you believe you’ll have at the end of your life.
However, there’s no way to know for sure how much money you’ll need to live off of for the coming years. A medical emergency, unexpected hospital stay, or unpredictable inflation could take a toll on your hard-earned savings, requiring you to spend more than you’d planned.
Giving your child their inheritance early means you might not have the cash you need to stay afloat throughout your later decades.
Going all in on “the next big thing”
From bitcoin to NFTs, it’s easy to get caught up in the excitement of investing in whatever seems to be this year’s “next big thing.” Occasionally, a risky investment pays off, as it did for some lucky cryptocurrency investors.
But going all in on the investing craze of the moment is a terrible idea for seniors who rely on their 401(k)s to fund retirement.
As a retiree, you don’t have the same fiscal flexibility — so no matter how excited your child is about the latest and greatest investment opportunity, sticking to your more conservative investment strategy is the smarter choice.
Financing grandchildren’s expensive hobbies
Saying no to grandkids can be even harder than saying no to your kids — but your retirement fund exists to support you once you’ve left the workforce, not to support your extended family.
As much as you love your grandkids, practice saying “no.”
There are plenty of ways to show your kids you love them besides supporting them financially. You can eliminate a lot of money stress out of your life just by setting that boundary.
Avoiding these mistakes ensures you can maintain financial independence no matter what life throws at you over the coming decades.
However they feel about your tightened purse strings right now, your kids will absolutely benefit from your fiscal responsibility down the line.