According to a recent Pew Research Center‡ study, 54% of adults aged 40-49 have provided financial support to their aging parents, children and adult children in the past year. In addition, 59% of those in their 50s and 83% of those in their 60s are sandwiched in between financially helping their parents and an adult child. With these additional financial strains, it can be challenging to understand how to manage your finances. Here are a few tips to help.
The first step in understanding where your money is going and if you have enough funds to help support other members of your family is to understand your financial plan. This includes a budget and a view of all your investments and other accounts like retirement and savings. As you review this plan, consider and rank what is most important to you—including financial support to family members—so you can prioritize your money allocations to match your values.
Understand different types of financial support
The type of financial support you provide your family members with will look different depending on their needs and current stage of life. For example, caring for your elderly parents could look like covering their medical and homecare expenses, while supporting your young adult children looks like paying for their education costs and housing expenses. Whether your child is in diapers or on their way to college, it is important to understand what financial support looks like for every life stage.
It can be overwhelming and stressful to manage the financial needs of multiple generations, but luckily there are tons of tools you can use to better navigate the financial needs of your family. If you need help saving for qualified medical expenses, look into setting up a health savings account (HSA) or flexible spending account (FSA). A dependent care FSA can also be used to pay for childcare costs of children 12 years old and younger. In addition, think about contributing to a 529 plan for your child’s future educational endeavors. A 529 plan allows your money to grow and be withdrawn tax-free, as long as it is used to cover education expenses, such as room, board, tuition and textbooks.
While your kids are at home and financially dependent on you, take time to teach them about the importance of budgeting and saving. You can start by giving your kids an allowance and taking them through the exercise of saving some, giving some and spending the rest. In addition, this is a great time to discuss needs versus wants so your kids can begin understanding how to prioritize the way to spend money. You can also open a youth savings account, which will allow you to establish a savings account in the name of your child, further preparing them for financial success.
Support and set boundaries with young adult children
When it comes to financially supporting your young adult children, it is important to set clear boundaries to ensure your finances will not suffer and that your children will continue to work toward their own financial security. Be intentional and specific about how you expect the money you are giving them to be used and if this is a one-time event or short-term solution. Do not dip into your own retirement savings to help your child out; instead, make sure money you provide them is from excess cash you have on hand.
It is also vital to specify whether your help is a gift or a loan. If it is a loan, your child will have the opportunity to pay you back in increments that you determine together. Also, be sure to set aside time to help your child set up a budget for their current financial picture. By setting boundaries on your generosity, you are helping your young adult child down the road to financial independence and success.
Whether you are supporting your parents or other older relatives, it is important to help protect them from online scams. Be sure you talk about changing passwords regularly and being skeptical if an email or someone on the phone asks for financial information. Set up alerts on their accounts so they can be notified quickly if unusual activity takes place and be sure to remind them to monitor credit scores regularly.
In order to balance the financial needs of multiple generations, you must stay focused on your own financial goals to ensure you have enough funds to continue to support your family. You cannot pour from an empty pitcher, so be sure to keep track of the money going out and coming in, as well as adjusting your budget as necessary. Even while financially supporting your family, do not lose sight of your own long-term goals like paying off debt and retirement.
Financially supporting other members of your family is no small feat. It can be both mentally and fiscally taxing. Keep the lines of communication open as you provide money advice and funds to your family. If you are unsure of how to maneuver these areas or have questions, UMB bankers are available to discuss tactics to make your financial picture easier to manage.
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