Should You Stop Taking Money from Your Parents?

It could put their retirement at risk.

If your parents occasionally gift you money, you may consider yourself fortunate. But for parents whose savings likely took a hit during the Great Recession, even a couple thousand dollars a year could contribute substantially to their retirement.

In fact, 70 percent of aging parents say they need to cut back on giving money to post-college children in order to get their own retirement in order, according to a recent survey from Merrill Lynch and Age Wave. The survey, which studied 50,000 respondents over four years, found that those who gave their adult children financial support doled out an average of $6,800 per year.

Anybody who has lived through the past decade or so can see why adult children can use the support — but that doesn’t mean it’s a wise practice to continue.

“Post-college adults relying on their parents for support are facing record-high student debt and stagnant wages,” says David Lynch, managing director and head of branches for TD Ameritrade. “For those millennials who have started families, they also face rising childcare and healthcare costs. Our research shows that half of grandparents today consider their adult child not completely financially independent.”

Why Cut the Purse Strings?

By continuing to rely on your parents’ money, you could be putting their own finances at risk — and setting them up to rely on you financially later on. In addition, by keeping your parents on the line as your financial safety net, you may be avoiding developing important habits of financial responsibility.

“Parents may feel inclined to take care of their children financially, even as they enter adulthood,” says David Geibel, managing director, senior vice president at Univest Wealth Management in King of Prussia, Pa. “However, by doing so they may be putting their kids at risk who will otherwise not learn personal finance basics. This isn’t just Mom and Dad’s job; millennials need to start taking ownership of their financial freedom and move away from relying on parents.”

How to Make the Break

If you’re ready to develop financial independence, follow these five steps to get started.

Set a date, then cut the cord.
While many recent college grads and millennials move back home for the short term to save money, it does not foster financial independence, Geibel notes. So be sure to make it a temporary fix.

Once you start getting back on your feet financially, set a goal to move out on your own by putting a date on the calendar. Then set a savings goal so you start out on good financial footing. Once you do move out, take all your bills with you: cell phone, car insurance, and anything else which tethers you financially to your parents. This will not only help foster independence, it will also build your credit.

Educate yourself based on life events.
Our K-12 educational system teaches us very little about personal financial management, and colleges and universities are not much better, Geibel explains. So start simple.

If you are enrolling in your first retirement plan, begin researching that topic to ensure you pick the most advantageous plan. Or say you have decided to buy your first home: Educate yourself on the different mortgage options and affordability indexes for homes. Enhancing your financial education as life events dictate is a great way to educate yourself and avoid bad decisions.

Create a backup plan.
Rather than relying on your parents as your safety net, put back a set amount of money each month to establish an emergency fund. Lynch recommends saving up enough to cover your living expenses for as long as it may take to find another job: three to six months is a good rule of thumb.

Create a budget.
Develop a monthly budget so you know where your money goes. Be sure track your savings each month, Lynch says. Base your budget on your own income, not including any expected windfalls from your parents. Include paying off student loans or other debt into your budget and pay off high-interest credit card debt as soon as possible.

Practice self-discipline.
If your parents still insist on giving you cash gifts at Christmas or your birthday, accept the gifts graciously — but don’t rely on them to balance your budget. Instead, consider depositing the cash into your child’s college fund or your emergency savings account.

 

Final Thoughts

Keep in mind that in some circumstances, accepting help is certainly OK. If your parents want to help you start a business or help fund your child’s college account, that’s perfectly acceptable. Also, “emergencies happen, and it is normal and appropriate for parents to assist if they are able,” says Kimberly Foss, CFP, founder and president of Empyrion Wealth Management.

“If a child has an illness that isn’t covered by insurance, parents might legitimately help out until things get back to normal. If a child is laid off or going through a difficult divorce, parents might wish to provide some temporary support. But none of these events should become a pattern,” she continues.

If you’re accustomed to relying on your parents for regular or occasional funds, and you gradually wean yourself off of those old habits, you may just develop a newfound sense of confidence and personal value.

Join the Discussion

5 Responses to “Should You Stop Taking Money from Your Parents?”

  1. Helene

    My parents historically didn’t help me financially from the age of 18 on, and it wasn’t until I was in my mid 40’s that my father lent me some money to buy a car. Once my mother passed away, something changed. His health began to deteriorate, and his previous issues became symptomatic again . Simultaneously, he offered to gift me a down payment for a home, which I accepted. He moved in with me once I purchased the home due to his health problems. He currently pays a small amount of monthly “rent” to me to help cover a portion of the utilities, and is now offering to help with house repair costs and some landscaping. I’m accepting this as well. I have told him he should keep his money as he may need it if we require in-home health care for him, but he wants to do things now with his money while he “can still enjoy it.” Plus, he’ll still have a substantial amount of savings once the project is complete. I’m his only living heir, so there is no problem with excluding other siblings.

  2. Joanne

    My parents provided the tools to make it in this world. I got a technical degree and have been on my own for YEARS. Adult children need to learn to stand on their own two feet and not expect mommy and daddy to take care of them forever.

  3. Carla

    I’m almost 40, why would my parents give me money?? I guess I have a difficult time understanding the question since I rarely met any adult to gets money from their parents. Maybe if the parents were wealthy…

  4. Justyna

    I read this article hoping it would help me convince my parents (and grandparents) to stop giving me money, but it contains no such advice.

  5. L H Beck

    After I moved out at 17 it would never have crossed my mind to regularly take money from my parents. But then, I was lucky. We were raised by two children of the depression who taught us how to manage both our money and our personal habits. They gave out money sparingly, but love lavishly. The money rule in our family was – don’t buy it unless you already have the money for it. Once you have the money, the next criteria is need versus want. Finally, consider the short-term versus long-term return. I had a job of some sort from 14 on and learned to take responsibility for my own economy. That made me feel adult and it made me feel like a capable person. I think it gave me courage to pursue my life while still having a safe place back at home to ground me. If I’d needed an emergency loan I’m sure they would have been more than happy to help, but I was very, very fortunate and never really needed it.

    The last piece of the equation for me has always been a sense of personal integrity. Taking a loan, or even using a credit card, is a form of giving your promise. If you let me use this credit card to pay for this item, I promise that I will make good on the debt. I’ve given you my promise. I’ve given you my word.

    There are many people who have not been as lucky as I have. They may not have started with the foundation of knowledge and experience that I had. Or maybe they had an unexpected life event that threw their finances into crisis, like a medical emergency or natural disaster effecting their home. In these cases it is a blessing when family have the means to help out, either financially or by sharing their home, or other support. I doubt you’d find a parent who wouldn’t want to do everything they could to help their children, no matter how old they get.

    But there are some children who really do take advantage – some don’t even realize they’re doing it. They never seem to accept adult responsibility for their own lives and continue to accept money (or other support) from parents who may not be able to afford it and may not know how to say “no.” It takes work to see your parents as people with the same pressures and responsibilities as anyone else. They’re not just there to take care of you anymore. Now it’s your turn to take care of them – emotionally and also, if necessary, physically and financially. It is a gift of love and an act of independence to set our parents free from the feeling that they need to take care of us in every way. We’re all adults now. All we really need to give each other is our love and our time. Keep the money out of it.