Dave Ramsey is an incredibly popular financial advisor known for giving his take on a wide range of individual financial situations. Indeed, many of the cases Ramsey provides advice on aren’t very straightforward cases. Some are very specific, peculiar, and need a bit of fine-tuning.
Though you probably won’t find your exact predicament highlighted on a Dave Ramsey show, there are still many reasons to tune in to take the man’s words of wisdom. Even if you’re not calling in, his shows tend to give a lot of food for thought, not to mention the small bits of advice that you may find fit your specific needs.
In this piece, we’ll look at an article published by Mr. Ramsey on his website that should be relevant for all parents of adult children.
It’s natural to want to help one’s kids amid tough times
Indeed, if you’re a parent with a sizeable nest egg, you may feel obliged to crack it open to help your children thrive rather than just survive, especially after the horrific inflation hailstorm. You are not alone in this feeling; recent financial surveys indicate that nearly half of parents with adult children provide them with some form of recurring financial support, often averaging over $1,000 a month.
After the last several years, the costs of virtually everything have swelled at a historic pace. For the Millennials, the post-pandemic inflation wave acted as just another big, unfortunate roadbump in their windy financial journeys. They graduated into the Great Financial Crisis only to hit another setback amid pandemic lockdowns and the inflation that followed around a dozen years later.
Compared to the Baby Boomers or Generation X, Millennials (and now Gen Z) have been dealt a pretty tough hand. Many Millennials and Gen Zs still face challenges breaking into the housing market, leading to a massive surge in “boomerang kids” moving back into their childhood bedrooms to save cash. As they have kids of their own (Generation Alpha), today’s parents of adult children may feel guilty living in a large home that’s paid off with a sizeable saved sum for retirement.
Although it’s natural to want to spread the wealth to loved ones earlier rather than later, especially since the affordability crisis is unfolding today, it’s vital that some balance is met. If adult children are living at home, Ramsey typically advocates that they must be working, paying some form of rent, and operating on a firm, mutually agreed-upon move-out timeline. He notes that financially supporting children without the right checks in place can lead to issues that turn a “safety net” (which Ramsey highlights as a good thing) into a “hammock” (something Ramsey advises against).
Finding the optimal balance is key
As with most things, the right balance has to be struck. And in the case of financially supporting children, one wants to avoid being labeled as the bank of mom and dad. Lean too heavily on the bank, and it’s not just one’s retirement nest egg that will erode, but the opportunity for one’s children to learn the value of being independent and staying resilient through the toughest of economic environments.
Ramsey is right. It’s a good thing to lend a helping hand when a child is behind on their rent. Your nest egg isn’t just a means to fund a lavish retirement for yourself but also a safety net to help catch a child should they fall into unfortunate financial circumstances. However, a core Ramsey principle is that you can get a loan for a house or a car, but you cannot get a loan for your retirement. Parents who over-extend themselves to support their adult children often jeopardize their own financial security, ironically forcing those same children to care for them later in life.
That said, Ramsey thinks things start becoming problematic if adult children have excessive expenses covered (think phone plans and all the sort) such that they give the wrong incentives (delaying the job search or being fine with prolonged unemployment).
Indeed, it can be challenging to encourage stoicism, resilience, and independence amid significant setbacks. That said, Ramsey believes that overprotective parenting can pave the way for unemployment or even mental health issues in adult children.
How to safely cut the cord
If you find yourself enabling an adult child and want to transition away from being their primary financial resource, it is best to do so strategically. First, provide a runway by giving a three-to-six-month notice before cutting off funds for recurring expenses like phone bills or car insurance, rather than halting support overnight. Second, consider offering to pay for financial counseling or a budgeting course instead of simply paying off their debts. Finally, clearly define the difference between a true emergency, such as an unexpected medical crisis, and poor financial planning, like an overdrawn checking account.
The bottom line
Ramsey suggests intentionally allowing one’s children to engage in “hard things” so that parents don’t unintentionally turn a safety net into a hammock of sorts.
By helping with the necessities (rent or even a down payment on a mortgage) and not the comforts (think streaming services and phone plans), perhaps parents can find the sweet spot to help their children without impairing an adult child’s personal growth.
Editor’s Note: This article was updated to include recent statistics regarding parental financial support, add guidance for scenarios where adult children live at home, emphasize the potential risks to parents’ retirement savings, and provide actionable steps for parents looking to reduce their financial assistance.
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