Please Secure Your Own Oxygen Mask First
You’ve probably heard a phrase similar to this during the safety briefing at the beginning of a flight:
“If there is a sudden loss of air pressure, an oxygen mask will automatically drop in front of you. . . If you are traveling with a child or someone who requires assistance, secure your own oxygen mask first, then assist the other person.”
So how does this relate to personal finance? As I’ve counseled people regarding their finances, I’ve noticed a disturbing trend: many parents are helping their adult children financially at the expense of their own financial futures.
The purpose of this post is NOT to say parents should never help their children financially. If parents are coming from a position of financial strength, I strongly believe there are times it may be appropriate to help their children with some of life’s expenses. However, if they have not adequately saved for their own future, I argue that they are not in a position to help their children financially.
Helping Adult Children
Parents have supported their children for a significant portion of their lives. They love them and want to see them have every opportunity possible. Parents want their children to have better lives than their own.
Over time their children grow up and eventually become adults themselves. They move out of the house (hopefully), pursue their own goals, and start their own families. Even with this transition to adulthood, however, many parents find it difficult to change this behavior of constant support, especially financially.
During the early adult years there are numerous life events that can require significant sums of money. These include going to college or graduate school, getting married, buying a first home, or starting a business. For most young adults just starting out, however, they don’t have the money to pay for many of these things on their own.
Out of habit, where is the first place they turn to for financial help? That’s right, their parents. And again, out of habit, the knee jerk reaction for most parents is to rush to their aid so as to save them from any deprivation, discomfort, or perceived missed opportunities. This is typically done without considering the consequences for both their children and for themselves.
Robbing Tomorrow to Pay for Today
Unless they have been very responsible financially up to this point, most parents don’t have the liquid cash reserves to pay for items of this magnitude, at least in full. Yet, they don’t want to let their children down. So what do they do? They rob tomorrow to pay for today.
This typically happens in stages. First, parents may stop saving regularly for their own retirement and put all of that money to what their children need. Next, if that is not enough they may dip into their nest egg to access even more money, eventually depleting it. If this includes borrowing money from their 401(k) or other tax advantaged account, there are often significant penalties in addition to the money they now owe in taxes. Finally, if still more money is needed, parents may go into debt for these expenses for their children by taking out a personal loan or home equity line of credit.
The net result is that parents put their own financial future in significant jeopardy to help their adult children pay for expenses today.
The Problems With This Approach
There are at least three major flaws in this financial strategy (or lack of a financial strategy):
Children’s Time Horizon >> Parents’ Time Horizon
Young adults have their whole lives and careers to earn money. It is usually perfectly reasonable for them to delay the major expense they are requesting money for so they can increase their savings until they can afford it. If that is not an option, they can get a loan for which they should have a sufficient amount of time in their working lives to pay back. Parents, on the other hand, have a limited number of working years left, especially if they are older and very close to retirement age. Draining their nest egg at this stage, or worse yet going into debt, can be financially devastating.
You Can’t Get a Loan for Retirement
While I recommend avoiding loans and debt whenever possible, some more expensive endeavors such as a formal education, buying a home, or starting a business usually require some degree of outside funding. And of course, loans for each of these things are available if necessary. But do you know what you can’t get a loan for? That’s right, you cannot obtain a loan to fully fund a retirement. So if parents spend all of their retirement savings on their children’s expenses, they are out of luck.
Perpetuating a Relationship of Dependence
When parents rush to pay for every major expense in their adult children’s lives it perpetuates a relationship of dependence. We all want the best for our children, and sometimes the best thing for them is to NOT pay for these expenses. It is infinitely more important for parents to teach their children how to provide for themselves. Let them struggle a bit. Let them find their own way rather than crippling them with a persistent dependency upon you financially. Let them learn about delayed gratification. It’s OK to say no, especially if you don’t have the means to responsibly say yes. And just because you don’t give them cash doesn’t mean you can’t provide support and advice to help them learn these critical life skills.
The Great Irony
When parents raid their retirement savings or go into debt to help their children with current expenses, they earnestly believe they are helping relieve their children’s financial burdens. The great irony is that they are in fact significantly increasing the financial burdens their children will likely have to bear.
When retirement comes and there are no retirement savings to live on, where do you think these parents will be forced to turn? Their children. Now the children have to shoulder the responsibility of supporting their parents throughout their entire retirement. This can be a significant drag on their own finances and future financial goals.
Here is how it often plays out. People without retirement savings try to live on social security alone. The reality is that social security alone is simply not enough for most people to live on. They may be able to barely scrape by if they have no major expenses, like a mortgage or car payments, but as soon as something goes wrong or an emergency comes up, they are in trouble. Now they have to turn to their children on a regular basis just to make ends meet. If their children can’t cover the costs of these expenses, they end up turning to government welfare, churches, or charities for assistance. I’m sure these are not the “golden years” they had envisioned.
The Better Course
Back to the title of this post: Please Secure Your Own Oxygen Mask First. Perhaps the best thing we can do to help our adult children financially is to secure our own oxygen mask first, meaning securing our own financial future before trying to help with theirs.
Now, I don’t mean you have to be completely financially independent before offering any financial assistance to your children. For example, many people likely aren’t financially independent by the time their oldest child goes to college. You can still help them with college in a financially responsible way without mortgaging your future.
Hopefully you have been saving some money over time solely for this purpose, perhaps through a 529 plan; this should be utilized first. If that is not enough though, you should not stop saving for your own retirement, draw from your nest egg, or go into debt to pay the remaining balance for reasons discussed above.
To learn to become independent, our children need to have some skin in the game. Continuing with the college example, they should apply for scholarships and financial aid. They could work a part time job while in school to help cover costs. They could use some of their own savings. Finally, if necessary they could consider some student loans, but I would weigh that decision heavily against what school they have chosen and perhaps consider a lower cost school.
Another example I mentioned above is a wedding. While we all feel this is an important life event, it really is a luxury expense. And like any expense, we should live within our means; so only spend what you can afford. Do not borrow from your future.
But what if you have enough money to comfortably help with major expenses, such as a down payment on a home or starting a business? Once again, if you are coming from a position of financial strength, I have no problem if you choose to help your adult children with these expenses.
However, just because you have the money doesn’t mean you should be paying for everything. You need to allow your children the chance to do some things on their own. Saving for their own home down payment teaches financial discipline, the kind of discipline required to maintain a home and make on time mortgage payments. Securing their own loan to start a business guarantees they are fully committed to making that business succeed.
So, in these situations where you have the means to help financially, you really need to use your best judgement about what will truly help your children in the long run.
Lessons to Learn
I wrote this post because I have seen so many people make these financial mistakes despite their good intentions. Here are some take home points to consider:
- Secure your own oxygen mask first; make sure you have a firm financial foundation before assisting your adult children with any major expenses.
- If borrowing becomes necessary, it is better for your adult children to take out a loan given their long time horizon than it is for you to deplete your nest egg or go into debt, especially if you are close to retirement.
- Sometimes it is wiser to withhold financial assistance, letting our adult children learn self reliance and independence.
