If You Can Financially Support Your New Grad, Go For It — But Beware These Traps, Say Experts

You've nurtured them and watched them grow from before they were born, and now your baby is a full-blown adult. It's a bittersweet adjustment for any parent, especially since you likely still want to protect them from any hardship they might face once they're out in the world on their own. And while you never want to see your child struggle, you might be wondering if the soft landing you've provided your grad will help or harm them in the long run.

First, it's worth noting that you're likely not alone in this dilemma. "Many people have faced unpredictable financial challenges over the past few years, so it's no surprise that some parents are still supporting their adult children in one way or another," says Courtney Alev, consumer financial advocate at Credit Karma. In fact, a recent Credit Karma survey found that nearly one-third of parents with adult children are still providing them financial support, which means you're probably in pretty good company.

But how do you navigate these tricky waters while helping your grown-ass kid develop into a responsible adult? It's all about planning and boundaries, says Deborah Cartisser, senior wealth advisor at Twelve Points Wealth Management.

While every family situation will differ, "It's beneficial to support adult children if you have the means to do so as long as you aren't jeopardizing your long-term savings plans," Cartisser says. "Parents need to focus on their own retirement needs first and foremost. There is a reason we are told to put our oxygen masks on first and tend to our children afterward. They make loans for college but not for retirement. Don't jeopardize your retirement for your kid's college."

The Knowledge About College

For many families, one of the first big money discussions centers on college and how to pay for it. "This should be spelled out clearly and in advance of the child choosing a school," says Cartisser. That means parents will need "to clarify what they will fund and what the child needs to fund," whether through direct payments or student loans that the parent or child will pay off post-graduation.

Since higher ed often comes with a hefty price tag, you'll need to make expectations clear long before those acceptance letters start coming in.

When Support Is a Necessity

If your adult child is chronically ill and/or disabled, financial support might be a long-term scenario. This is when you'll most benefit from talking to an estate planning attorney who specializes in special needs trusts, Cartisser explains. "This can help support the child without putting money in their name, so they are eligible for programs like Social Security disability."

She adds, "You can also set up an ABLE account if the child was disabled prior to age 26. This tax-free savings account allows parents to save for their child without sacrificing the child's ability to participate in assistance programs. You put in after-tax contributions, and the money grows tax-free for the benefit of the disabled child. Anyone can make contributions to the ABLE account."

Other Circumstances

Perhaps your kid is struggling to secure a job and needs some extra support as they get on their feet. This is where you'll need to have open and honest dialogue to set terms that all parties can agree on, says Alev. "Have a conversation so you can set guardrails around what you are willing to help them with and align on a timeline to get paid back. Note upcoming milestones when you will start to reduce financial support, which will help them spend and save accordingly."

Setting limits might feel tough, but it's essential so you don't end up drowning financially, both experts note. "You should not be financially supporting your children if you are already having difficulties making ends meet for yourself," says Alev. "You don't want to find yourself in a situation where it's even more difficult for you to keep control over your finances. If your child absolutely needs financial help, consider giving them the money as a loan with a detailed payment plan, with the goal that any money you offer will be paid back on time."

Another option: "Offer to help with a specific bill or set of expenses for a set period of time," suggests Cartisser. "Don't give a lump sum for a monthly bill; instead, give them the money monthly."

Cruel to be Kind

Unfortunately, there is a chance your kid will start to take advantage of your kindness, as both pros explain. "You can end up raising children who always have their hand out, with the expectation that the parent will fund their every whim and every financial mistake," says Cartisser. "Beware of setting expectations that you are the unlimited source of funds that will always bail them out."

In this instance, "You must draw a boundary and let them know you are not going to continue supporting them financially and set a deadline for when you plan to stop giving them money," adds Alev. "If you don't want to cut them off entirely, try cutting back on how much you're giving them regularly. Regardless, create a detailed payment plan to ensure they pay you back in full."

"If you are contributing to their monthly expenses, it should come with visibility into their monthly finances," says Cartisser. "Let the child feel the impact of running out of money at the end of the month and having to eat what's in their pantry. Let them feel the impact of the mistakes they make. Allow them to be uncomfortable instead of immediately rescuing them, or they may not learn the lesson. If you are a couple, be a united front and discuss all money matters involving the children together. Don't allow the child to appeal to one parent in one situation and the other parent the next time, with neither aware of what the other is doing to support the child."

It might sound harsh, but working with them early and often can help soften the blow, says Alev. "Based on their situation, offer to help find ways to generate more income on their own. Sit down with them to help them create a monthly budget based on their spending and saving habits. You can go through their various statements to help them find areas where they can and should pull back on their spending."

And, says Cartisser, you should model how to make sound financial decisions. What goes into your thought process? These are things your grad will benefit from seeing in action. "Let them hear you talk about ways to save or not spend money," she says. "Be sure you are part of the decision-making process and not just the person they turn to when they have gotten themselves into financial trouble. Teach them along the way so they don't go out on their own trying to replicate your lifestyle."

While none of these conversations are easy to broach, they will help protect you and your kid in the long run, no matter what the future may hold.