Navigating Family Finances: When Helping Hurts Your Financial Security

The financial landscape today is marked by volatility and uncertainty. Stock market prices are high. Interest rates are rising. The cost of living, including food and housing, continues to soar. It’s easy to feel overwhelmed by these challenges, so how are you managing all this chaos? For many, the key is focusing on what’s truly important—your family’s financial security and long-term well-being.

One issue I’ve seen repeatedly in my practice as a financial advisor is the pressure parents feel to support their adult children financially. This may be out of love or concern, but sometimes it comes with the expectation of repayment—a repayment that, more often than not, doesn’t happen.

In fact, my junior advisor, Andrew, recently shared with me some stories of clients who’ve given their children large sums of money, hoping to be paid back later. However, these good intentions don’t always translate into good outcomes. Many parents aren’t seeing a return on this financial support, and it’s raising some red flags. If you find yourself in this situation, it’s important to ask: Is your child truly capable of paying you back? And more importantly, what impact will this financial help have on your own long-term security?

Tough Love in Family Finances: Knowing When to Stop

If you notice a pattern where your child is being “helped out” repeatedly without showing real progress, it might be time to reassess the situation. While we all want to see our children succeed, the constant financial support could be doing more harm than good—for both you and them.

It’s essential to evaluate whether your child has a realistic chance of getting back on track. Are they making the necessary efforts to improve their financial situation, or are they relying on you as a safety net? In many cases, even if a child starts to improve, the repayment to parents never materializes. This can lead to long-term financial strain for the parents, especially as they approach retirement.

I can personally relate to this. Like many of my clients, I’ve faced similar situations. I’ve written about the topic of financial boundaries for decades, but when it hits close to home, it’s easier to see how complicated it can be.

A Personal Story: The IRS and My Own Wake-Up Call

When I was in my twenties, I had a run-in with the IRS that I’ll never forget. I was working as a contractor at the time, living in a modest rental home, when an IRS agent showed up at my door. It was an early morning, and I was caught off guard—still in my underwear with my dog barking like crazy outside.

The agent warned me that if I didn’t pay what I owed, my accounts would be frozen, and I’d be unable to continue working. When he left, I was filled with a sense of dread and helplessness. In a moment of frustration, I threw a clipboard through my window. I had no money, no options, and I was staring down the barrel of financial ruin.

I’ll never forget the weight that lifted off my shoulders when my dad stepped in and gave me the money to settle my debt. That was a pivotal moment in my life—a wake-up call that I’ll always remember. But the key thing is this: that was the only time my dad ever bailed me out. I never asked for financial help again, even though there were moments I could have used it.

Why Financial Boundaries Are Important for Your Future

When it comes to helping your children financially, it’s critical to set boundaries. It’s one thing to provide occasional support, but if that support turns into a pattern, it can threaten your own financial well-being. I see this with clients all the time—parents who continue to bail out their adult children, to the detriment of their own retirement security and peace of mind.

In my case, I do help my own sons financially, but it’s typically without them asking directly. They might go through their mom, but they know I’m not a bottomless pit of resources. My youngest son, Jack, moved to California after high school, saving me the cost of college tuition. Yet, as many parents discover, it’s not always as simple as it seems. I provide help when I can, but never at the expense of my own financial responsibilities.

Unfortunately, Andrew and I see many clients in a similar situation where their generosity starts to impact their lifestyle and security. This is when things can get dangerous. If you’re constantly bailing out your children, you might be putting your future financial stability at risk.

Key Takeaways: When to Say No and Protect Your Financial Security

Here are a few important tips to consider if you find yourself repeatedly helping your children financially:

• Set Clear Boundaries: It’s essential to establish financial boundaries with your children. Occasional support is fine, but if it becomes a habit, it could hurt your financial security.
• Evaluate the Situation: Before providing financial assistance, ask yourself if your child has a realistic chance of paying you back. If there’s no concrete plan for repayment, consider other ways to help that won’t jeopardize your financial health.
• Prioritize Your Own Future: Your retirement security and peace of mind come first. Don’t risk your long-term goals by continuously bailing out your children.
• Practice Tough Love: Sometimes the best way to help your child is by saying “no.” Encouraging them to become financially independent is a valuable lesson that will serve them in the long run.
• Avoid Enabling: If financial help is preventing your child from learning financial responsibility, you may be enabling them, rather than helping. Don’t let their reliance on you damage your own finances.
• Have Open Conversations: Discuss financial boundaries with your children openly. Setting expectations and being clear about what you can and cannot do will make things easier for both parties.

The Bottom Line

As a parent, it’s natural to want to support your children, but there’s a fine line between helping and enabling. If financial assistance is jeopardizing your retirement or long-term goals, it’s time to take a step back. By setting clear boundaries, you’re not only protecting your own financial future, but you’re also teaching your children valuable lessons in financial responsibility.