Should You Financially Help Your Adult Child

Should You Financially Help Your Adult Child

Becoming financially independent during one’s 20s and 30s is becoming that much more difficult with each passing year.  Many young adults are drowning beneath student loan debt, credit card debt, auto loans, and mortgages.  

The cost of postsecondary education and housing have skyrocketed to the point that, in many cases, only the children of the wealthy have a chance at becoming truly financially independent during their young adult years.  

As a result, plenty of parents find themselves in the unenviable position of considering whether it is right – or even feasible – to financially help an adult child.


Explore the Pros and Cons of Financially Helping Your Grown Child 

Members of the millennial and Generation Z age cohorts certainly deserve society’s sympathy.  These debt-saddled young adults have lived through two recessions and massive technological changes that disrupted employment of all different types.  

However, simply forking over tens of thousands or hundreds of thousands of dollars to an adult child might not be the best approach. 


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Meet with a fiduciary CERTIFIED FINANCIAL PLANNER® Professional in Libertyville, IL before making the decision to lend or gift money to your grown child.  A CERTIFIED FINANCIAL PLANNER® Professional who qualifies as a fiduciary has a duty of care owed to you, the client.  This means your Libertyville fiduciary CERTIFIED FINANCIAL PLANNER® Professional will look out for your best interests when discussing financial matters with you.

Your advisor can break down several different scenarios pertaining to gifting or loaning money to an adult child.  As an example, this financial expert will crunch the numbers on your behalf so you see exactly how helping your adult child will take a toll on your personal finances.  

If the money is to be lent to your adult child, your CERTIFIED FINANCIAL PLANNER® Professional in Libertyville will run the numbers so you know exactly when you will receive the money back and if interest tacked on to the loan has the potential to match that earned through investments.  A financial advisor will also delve into the potential financial carnage that could result from your adult child defaulting on this personal loan so you know exactly how the unpaid loan could impact your personal finances in the short term and also across posterity.


Develop a Comprehensive Financial Plan

You can benefit from a detailed financial plan moving forward.  If you are uncertain of your financial picture, your path to retirement, or how you will support yourself in your golden years, it may make sense to meet with a fiduciary CERTIFIED FINANCIAL PLANNER® Professional in Libertyville, IL.  

This informational session will evaluate your current financial position and investing strategies to determine if you can afford to gift or loan money to your adult child.  Your advisor can also help you put together a plan to strategically save and invest in a manner that builds your wealth yet also leaves the door open for a potential financial gift or loan to one or several adult children in your family.


Hope for the Best, Plan for the Worst 

The economic toll of multiple recessions, the soaring cost of living, and the COVID-19 pandemic have left plenty of young adults financially devastated.  If you have tweens, teens, or young adults in your family, now is the time to start preparing for the seemingly inevitable financial emergency likely to arise in the years ahead.  This means it may be in your interest to create an emergency cash fund for your adult child.  

Make a single deposit into a savings account dedicated to your adult child’s financial challenges likely to arise down the line.  Continue to add money to the account with each paycheck.  This way, if your adult child becomes unemployed, cannot pay back student loans, or falls behind on home mortgage payments, you can provide a financial safety net.  This financial rescue has the potential to prevent your adult child’s home foreclosure, student loan default, and even bankruptcy. 

Contact your local bank or credit union to see if they provide a change deposit system in which your debit card purchases are rounded up so the change can be forwarded to the savings account created for your child.  Continue to use your bank or credit union debit card for all purchases and the money deposited into your emergency stash will add up surprisingly quickly.

If your adult child ends up paying back the money you gifted to him or her, do not throw a party, go on vacation or remodel your kitchen with the money!  Instead, assume the worst possible scenario will unfold in the years and decades ahead.  There is a chance your adult child who paid back your financial gift or another one of your adult children may need additional financial support down the line.  Put the money repaid right back into the savings account dedicated to your adult child’s financial emergencies and you will be able to gift or lend the money once again if necessary across posterity.


Consider Gifting Non-Cash

Your Libertyville CERTIFIED FINANCIAL PLANNER® Professional can help you determine if gifting mutual funds or shares of stock that have appreciated in a non-retirement account is better than gifting or lending cash.  Gifting stocks or mutual funds to your fully-grown child just might offset potential capital gains taxes that would have been triggered if you sold those shares when they were in your trading account.  

Once the shares are gifted to your son or daughter, he or she can sell those assets and absorb the capital gains tax on the sale.  This way, you receive the auxiliary benefit of a reduction in potential capital gains taxes and your adult child receives the money (albeit, indirectly) necessary to extinguish short-term financial fires.


Consider the Emotional Impact of Gifting Money to an Adult Child

Use your mind’s eye to envision a scenario in which you gift money to your adult child only to end up running out of money during your retirement in the years ahead.  It is no secret that plenty of fully-grown adults in their 20s, 30s, and 40s are facing daunting financial hurdles.  

These young adults may not have the financial means to support you once you reach your golden years.  Furthermore, there is a chance your adult child might ask you for yet another gift or loan years or decades after the initial loan.  

It is quite possible your adult child’s financial needs will take such a large chunk out of your assets that you end up going back to work, selling your home, or declaring bankruptcy.  Such an outcome would undoubtedly strain your relationship with your adult child and might even lead to estrangement.  

A financial advisor can help you determine if you have the financial wherewithal to gift any sum of money to your adult child without jeopardizing your financial future or the bonds that hold your family together.

At Prism Planning Partners, we are CERTIFIED FINANCIAL PLANNER™️ Professionals committed to facilitating important questions so that we can help you explore all of your opportunities. We offer a broad array of financial planning and consulting services for our clients-including retirement, investment, and estate planning.

Contact us today and let us illuminate your possibilities!

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