Money is a deeply personal topic for most people. You may not want anyone to know how much you’ve saved or disappoint anyone by sharing how little you’ve saved. At the same time, you may not know how to help adult children with their finances without creating a moral hazard — or encouraging them to come back again and again for money.
These conversations can be uncomfortable in the moment, but it’s important to have them early on to avoid future problems. The last thing you should do is surprise your adult children with long-term care responsibilities or potentially sow conflict with an unexpected inheritance. Fortunately, there are some simple ways to facilitate these conversations.
Let’s take a look at some specific strategies for discussing finances with your adult kids to avoid any problems or surprises.
Start the Talk
Seventy percent of family money conversations occur only after a health crisis or other emergency, according to the Home Instead Senior Care Network.
That’s a problem because these medical emergencies can radically change the family dynamic and cause a lot of stress and conflict — not to mention it’s a high-pressure time to have conversations about money.
Adult children should have a basic understanding of what to expect as you age:
- Did you save enough for retirement?
- Do you have long-term care insurance?
- Are you planning on their help as you age?
- Do they have nothing to worry about?
These can be uncomfortable conversations, especially if you don’t have enough money saved up to support yourself, but starting the conversation early on can lead to solutions before it becomes too late to come up with a plan.
If you have saved up enough for retirement and beyond, it’s equally important to have conversations about inheritance. A large inheritance can quickly sow conflict among children that are already grieving a loss.
The 70-40 rule recommends fully disclosing your finances and inheritance plans by the time you turn 70 or your children turn 40. Before then, you may want to keep things a little vague to avoid disincentivizing them and/or locking yourself into a decision, but that doesn’t mean that they shouldn’t have any idea of what to expect.
Financial advisors provide a great way to facilitate these conversations in an official setting. They can answer any specific technical questions about inheritance or long-term planning and you can get all of the necessary paperwork signed at the same time. The financial advisor may also be a good point of contact if and when anything happens.
A great starting point is simply introducing your children to your financial advisor. It gets them thinking about saving and they know where to turn in the event of a medical emergency or your death. It also helps them understand your approach to investing.
Write Down a Plan
Almost half of Americans between the ages of 50 and 64 don’t have a will, according to a Gallup poll.
That’s a concerning statistic because, if you pass away without a will, your assets will be divided based on the laws of intestate succession. These laws usually distribute assets evenly among heirs, but there’s no discretion written in the law and that can cause conflicts among your children — especially if you haven’t talked to them beforehand either.
There are several steps you can take to organize your estate:
- Record your bank accounts, investment accounts, debts (e.g. mortgages), insurance policies, pension plans, and other income and expenses in a single place.
- Provide the names and contact information for any financial advisors, lawyers, accountants, and other professionals that may have a say in what happens after you pass away.
- Create a will that outlines exactly how and where your assets should be distributed when you pass away to avoid any ambiguities and misunderstandings.
It’s important to keep these plans in an accessible location. For instance, a safety deposit box may seem like a good idea, but if you miss a payment, the contents may be destroyed. There’s also the risk of one heir accessing the box without the others and causing potential issues. Storing records with a financial advisor, lawyer or accountant is usually a better idea since they have a way to keep things on file and your children can easily make a call to find it.
One of the greatest gifts you can leave your heirs is an organized estate. Death is an emotional time to begin with for your family. Adding the stress of unravelling a complicated financial situation only makes it more difficult. Start the conversations early and keep your records up-to-date.
Know When to Help
Nearly one-third of young adults are in a “financially precarious” position because of poor financial literacy and income stability, according to a University of Illinois study. Many were frequent users of alternative financial services, such as payday lenders, and experienced less financial socialization, or informal learning about finances.
Adult children may feel ashamed to ask for money, but turning to payday lenders could be a very costly mistake. At the same time, a failure to save early on in their careers could lead to a significant reduction in their potential retirement income.
If your children are in financial distress, it’s important to talk with them to avoid making further mistakes and perhaps lend them money if you can afford it. At the same time, you should never blindly give them money or get into a situation where you abruptly cut them off.
Start by providing them with some advice and offering to help them out when needed. If they are running into debt issues, offer to help them create a budget with the help of a financial advisor before helping them out financially.
If your children seem to be doing fine, you should still try to encourage them to save as much as possible and start investing early to realize the benefits of compounding interest.
The Bottom Line
Money is a deeply personal topic for many people, but it’s important to have conversations about it before it becomes a problem or surprise. By planning ahead, you can help your adult children avoid poor financial decisions, come up with plans for your long-term care, and set themselves up for success.
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