The best ways to support adult children in the midst of a recession

Parents of grown children across the U.S. are considering exiting retirement or refinancing their homes to support their children’s bank accounts — and the requests for money will only continue.

But when is it time to close the Bank of Mom and Dad to protect your own financial security, especially in the face of a global recession?

Economists are divided on whether the US will fall into a period of great economic recession. The most optimistic of the group cited the slowdown in the US increase in wages which has accelerated inflationand on Thursday the The Bureau of Labor and Statistics announced that US Inflation fell to its lowest level in more than a year.

Others, like Nouriel Roubini of New York University’s Stern School of Business, say the world is on course for a “train wreck”.

Mohamed El-Erian – who serves as president of Queens’ College at the University of Cambridge – warned that the likelihood of a US recession is “uncomfortably high.”

The obvious business leaders lack of confidence as many individuals panic about their financial security.

During the pandemic the younger generation is increasingly having to rely on their parents for support, after being thrown into the world of work often without prior experience or savings to fall back on.

College-aged kids are increasingly fearful about their financial stability – with a A recent study found that they worry about inflation and recessions like shootings.

Last spring Savings.com found that one in two parents of children aged 18 and over help their children with money. In fact, parents spend 23% more on their children’s expenses ($605 per month) than they contribute to their own retirement or savings ($490 per month).

Of the 1,000 parents surveyed the majority support children aged 24 and under. However, 17% financially support children aged 25 to 29 years old, and 19% finance children aged 30 or older.

The research also found that 25% of parents are willing to take money out of their savings or retirement accounts, 17% will take out a loan, 9% will exit full retirement and 7% will put their homes on the line through in refinancing.

Children typically spend their parents’ money on necessities such as food and rent, although 46% of parents also see their money used for holidays, and 66% report covering bills. on their children’s cell phones.

When should parents reduce or cut off financial support?

So how do parents balance their financial needs with their children’s? The answer is setting kids up for success as early as possible, wealth managers say.

“Children learn fulfillment from productive activities where they can receive an allowance and buy something they want, or get the thrill of saving money. to stand up for themselves, to think that nothing’ y dynastic wealth involved,” said Kevin Philip, managing director of Bel Air Investment Advisors.

“Many families seem to be hoping for a lottery ticket in sports or entertainment for their children when the reality of becoming a successful career is very small. variety of extracurricular experiences that interest them and the best that strengthens their resume.”

Paul Denley, chief executive of London-based boutique investment firm Oakham Wealth Management, echoed this, adding: “There comes a time when it’s healthy for any young person to feel independent and stand on their own two feet. The basis for this should start at school, university or college – it makes sense for students to look for work during the holidays or part-time and feel what it means to work and get paid for that effort, and evaluate the value of money from of efforts.

“If everything is handed to you on a plate you may not feel that any success is truly your own. the money of your own? Obviously these are luxury examples but the same can be applied to more modest ones ambition.

What is the best investment for children?

As well as medical insurance, investing in a child’s education, psychological well-being and confidence is the best way to prepare them for later life, experts added.

Philip continues: “Financially speaking, 529 plans for education savings are helpful and once income is earned, boosting ROTH IRAs, traditional IRAs, and/or 401ks should be encouraged but not required. Usually one can’t do everything. . In the first few years of buying a house, for example, one might not be able to fully contribute to retirement plans, but I think that’s OK.”

Denley added that parents should stay away from “lifestyle” support as much as possible, adding: “If parents start a fund for children at birth with the aim of presenting the nest egg of the child at the age of 25 or 30, this represents an important investment period, including several investment cycles, and the reinvestment of dividends leads to compound returns. Between December 1978 and December 2022 the The MSCI World Index has returned more than 10% per year on average, a rate of return that doubles the original investment every 10 years.

“The main challenge is to ensure that this nest egg does not interfere with (ie spend) the journey.”

What should you teach children about possessions?

Helping your children understand what questions to ask and who to trust with financial management is key to their financial success, Philip added.

Parents should also aim to teach their families about stocks, help them set up their own accounts and help them average the cost of index funds each month.

The personal finance expert emphasized that the trust of a built-in creditor and asset protection can be established and if this is not the case, then the pre-nuptial agreements of future marriages can be “careful”.

How do parents handle conversations about living expenses?

When a child is out of education and looking for a job, it’s a flag for parents that it’s time to back off. Denley said that considerations of how much financial support is needed depends on how much is needed to allow the graduate to focus their energies on finding a good job.

“It seems unwise to provide their own accommodation if they can do what they need to do from the family home until they can afford their own living expenses. and buy a few pieces of furniture to ensure that their wonder can focus in their new career without having to sleep on the floor.

“Another consideration is to avoid giving a regular allowance, instead giving more resources when requested. This at least puts the pressure back on the child who has to ask for cash, rather than expecting it to appear from the magic money tree,” he added.

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