Healthy Boundaries are Crucial, Especially with Finances

Mom handing daughter cashOriginally Published in North Bay Business Journal

April is Financial Literacy Month, and as a Certified Financial Planner®, I can tell you stories upon stories of how beneficial it is for parents to start early in teaching their children about money. I can also share myriad stories about how a lack of financial knowledge has saddled young adults with debt they may have for the rest of their lives.

For parents of young children, the advice my colleagues and I stress is that they involve the kids as soon as they are old enough to understand the basics of money. A popular theory speculates that money habits are set by age seven, so the sooner the better! And as we have all come to realize, the vast majority of schools do not include personal finance skills in the curriculum. Whatever kids are learning, they are learning at home, and starting early with lessons on saving, the magic of compounding interest, budgeting, and credit/debt will pay dividends in building skills that will help them throughout their lives.

But what about adult children who didn’t get these superhero money skills early on? Now the focus for parents is to transition from parenting children to parenting adults. With children, parents set rules. With adult children, parents need to set boundaries.

Robert Frost famously wrote “good fences make good neighbors,” a proverb about the importance of setting boundaries. While Frost is using the metaphor of physical boundaries, this is widely interpreted as relating to the importance of setting clear emotional boundaries. In the same way that good fences make good neighbors, healthy boundaries make healthy relationships, an idea that comes up often with my clients in relation to their adult children.

I would never say that parents choosing to support their adult children are making a poor decision. For parents of Millennials who graduated college into the Great Recession, financial support was crucial in many cases. The fear is that parents will fail to plan for this kind of financial commitment, to the detriment of their own retirement.

In fact, a 2018 study showed just that. Parents of adult children spent $500 billion annually on their children aged 18-34 (food/groceries, phone, car expenses, school, vacation, rent, and student loans), double what they contributed to their own retirement funds.

Of course, it’s a very different scenario to be paying for a 20-something child’s college education than to be paying for a 30-something’s room and board. But either way, parents need to have a plan for how their support is going to work and when it’s going to end. If the goal is to raise successful, independent children, we need to be deliberate about how to approach the subject of support.

Many parents may decide that supporting their adult children is a priority, not a burden – and that decision is perfectly reasonable. But with this gift of support should come clear boundaries about what is expected in return and a plan to afford these costs while still building the retirement fund you need and deserve. Parents should be determining exactly how much they can afford to give while creating and communicating the boundaries that will make this relationship remain healthy and happy.

Here’s the thing: if parents choose to support their children over prioritizing their retirement savings, in a few years these same adult children may be put in the position of supporting their aging parents. And for adult children with little basic knowledge about budgeting, debt, and personal finances in general, this is a recipe for disaster – both financially and perhaps emotionally. Healthy boundaries will also help to prevent resentment and guilt, along with the prospect of crushing amounts of debt.

No matter the age of your children, setting rules and creating boundaries can be difficult. But what is at stake if you don’t face this sooner or later can set up a family to lose out on the generational wealth that can create a legacy you can be proud of.

My advice for these kinds of conversations is to be honest, compassionate, and lean on your financial advisor for backup. I am always happy to support my clients in creating space for healthy discussion and a transparent accounting of their financial limitations. As always, my goal is to support you in reaching your goals and including the whole family in these plans is always a smart move.

The takeaway: while it’s never too early to teach children financial literacy, it’s certainly not too late.