This Month, Theo and Yolande reflect on 2019 and discuss the year ahead.
A note from one of our financial planners:
Do not bankrupt your future
My oldest daughter is 19 years old and just completed her first year at university. Last year we sat to draft a budget for her. This was actually not only a budget for her but also one for us, as we are the ones paying for her studies, transport and pocket money. It was important to us that she understood the cost and privilege of getting a chance to study at university. The amount we got to was R 130 000 per year. Wow! This is a serious number, regardless of how much you earn, especially if you haven’t planned for all the extra expenses. Where will the money come from if you haven’t planned and saved for it?
I have not been able to find any South African research on this topic but, according to new research released by the Pew Research Center in America, about 6 in 10 parents admit they’ve given at least some financial help to their adult children, aged 18 – 29. A recent study by Merrill Lynch (also American) found that nearly 8 in 10 parents (79%) say they give some financial support to their adult children. According to the Merrill Lynch study, parents are putting their financial future in jeopardy to support their adult children. Nearly 3 in 4 parents (72%) say that they have put their children’s interests ahead of their own need to save for retirement; and about 2 in 3 (63%) say they have sacrificed their financial security for the sake of their children.
You may argue that your children are your everything but, in the end, are we not failing to teach our children financial independence and debt management? Are we not pilfering our own retirement coffer? Just remember, by helping your adult children financially, you may someday make yourself a liability to them.
Of course it can be tough to totally cut off financially supporting your adult kids. So, here’s some advice that can help:
Help them compile a budget. Sometimes a better gift than money is the chance to have one-on-one help with setting up a cashflow plan, or a debt reduction plan. If you do not know how to help with this, call on us to assist you.
Give them non-financial support. Some examples: Instead of paying their rent, have them come live at home with you until they land a job. Instead of repaying their student loans, help them refinance to more manageable payments.
Help in the right instances. Determine how responsible your child is with money. If they aren’t responsible, they will continue to rely on you financially. Will it be a one-off assistance to get your adult child over their financial crisis? If it is, you can help, for example, by keeping them on your cellphone plan for a limited period of time or helping them to pay off a vehicle. Even assistance with making the down payment on a first home can be OK, as long as it doesn’t come with expectations of ongoing help. Make sure when you help it is specific and clearly limited in scope and duration.
To teach your children self-reliance is a much better gift than money. Remember that by putting yourself first, you are actually doing them a favour, as they will know that they will not have to provide for you in your advanced age.
The final message is; please do not act as an ATM for your adult children, as this may bankrupt your future.
Wessel Oosthuizen , CFP®