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Parents: Put Your Retirement First

By Brian D. Kilb

The term “sandwich generation” refers to my age group where care and support needs to be provided to parents as well as children, sticking us in the middle of two often challenging situations. Financial planning deals with many issues relating to the elder demographic, but today’s youth can also provide obstacles heightened by the recent financial turmoil.

Unemployment has been particularly troubling for young people. The latest report from the Bureau of Labor Statistics shows 18.6 million unemployed Americans between the ages of 16 and 24. The proportion of that age group working is the lowest on record, dating back to 1948.

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Society has shared some of the burden, with government programs such as unemployment compensation providing some assistance. But even many young adults with jobs are living in circumstances that include outside support. The fact is many parents have been unexpectedly compelled to provide resources for kids who have yet to achieve their own financial independence.

A survey by the National Endowment for Financial Education found that 59% of parents support their adult children, 18- to 39 years old. Of those parents, 48% provide help with living expenses, 41% with transportation costs, and 29% with spending money.

The unexpected burden of still-dependent children has created additional challenges for parents nearing or already in retirement.

In many cases, the unplanned-for financial burden of young adults is having a detrimental impact on the plans of their parents, over half of whom are at risk of not being able to afford retirement, according to the Center for Retirement Research.

Here are a few things to think about if you find yourself offering financial support to children you thought would be on their own by now:

Don’t ruin your financial security. Your financial demise wouldn’t do your children any good. Help your kids where you can, but don’t make yourself a financial burden to somebody else in the process. Remember the airplane safety instruction to put on your oxygen mask first and then help your kids. You can’t help them if you’re physically or financially unconscious.

Differentiate between their needs and wants. Don’t jeopardize your financial stability to provide things for your kids that aren’t absolute necessities. Spoiling them at 25 isn’t any different than spoiling them at 4. If they need help from you and that help undermines your financial plan, limit your help to basic needs such as food, shelter and transportation. By the way, cable TV is not a basic human need.

Help in ways that stress temporary – not permanent – support. Let your assistance reinforce the concept that your help bridges a gap. Structure your support in a way that reinforces the temporary nature of your help. If it comes in the form of a week-to-week or month-to-month payment, you will be sending a regular reminder of your presence – and their dependence.

Where possible, use assets – not income – to help. A very useful way to help your kids may be to lend them the money. Offering a loan at favorable rates can help your children over a difficult period. You get the assets back someday, they get a break on interest (or perhaps get a loan they otherwise wouldn’t qualify for) and the kids still have some skin in the game. Be careful that the loan is not so substantial that the failure to pay it back causes you irreparable harm.

Don’t make it easy. Your help should come with a financial lesson as a minimum cost. If you want to help your kids, instill financial discipline in them at the same time you provide assistance. Show them how they are better off in the future doing it on their own. Don’t punish them for needing help, but send a clear message that independence is better.

Say “no” when you have to. That’s Parenting 101. Encouraging your kids to rely on financial support when it’s not absolutely necessary only reinforces bad habits. It may be difficult to say, but as a parent you have learned that “no” is a useful word.

My mother was fond of saying you never stop being a parent. In difficult times such as these, your kids may need help, and you may be the first place they turn. If you are able to help, do so in a manner that insists the kids take responsibility.

Most importantly, don’t let helping the kids jeopardize your financial security. Nobody wins in that situation.

Brian D. Kilb is executive vice president and chief operating officer of Landaas & Company.

initially posted Feb. 8, 2012

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