Family Wealth Dynamics: Setting adult children up for financial success.

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Almost 60% of parents say they gave financial help to an adult child (age 18 to 34) in 2023, according to a recent Pew Research survey.[i] While providing financial support to adult children can be a gesture of love, it can also present challenges for both the parents and the children. Here are some strategies and considerations to help strike the balance between setting boundaries and offering monetary assistance

Start with a clear understanding of your own goals and needs.

Taking the time to clarify your personal financial needs ensures you’re not prioritizing helping your adult children over meeting your own financial obligations.

  • Review your cash flow requirements. How much money do you need monthly to cover expenses and desired lifestyle spending.

  • Consider long term needs. How do you plan to pay for a major medical expense or an extended assisted living accommodation?

  • Set personal limits. Think twice before dipping into your retirement savings or taking on additional debt.

  • Don’t sacrifice your own financial well-being. By taking care of yourself first, you’ll be better positioned to extend meaningful assistance to your adult children.

Communicate expectations.

Providing monetary support without setting boundaries or communicating clear expectations can hinder the development of financial responsibility and independence in adult children. Follow these guidelines to reduce disagreements about how money should be spent, or other terms and conditions, which can put a strain on parent and adult child relationships.

  • Schedule a conversation. Set a time dedicated to discussing the financial support you’re willing to provide. Prepare to have an open and honest conversation where each party can freely express any thoughts or concerns.

  • Be Transparent. Clearly articulate the purpose of the financial support and what specific expenses or needs it is intended to cover. Whether it's assistance with education, housing, healthcare, or other expenses, make sure your adult children understand the intended use of the funds.

  • Get specific. Now is the time to get specific with dollar amounts and timelines.  Discussing your budget and expectations encourages your adult children to actively participate in the planning and decision-making related to their finances.

  • Respect their independence. Emphasize the importance of responsibility when receiving financial support while respecting your adult child’s need for independence and autonomy.  

By following these guidelines and communicating expectations clearly, you can establish clear boundaries and responsibilities while fostering trust and respect between you and your adult children.

Additional Considerations

  • The annual gift tax exclusion for 2024 is $18,000 ($36,000 for married couples). This means an individual can give away up to $18,000 in assets or property (to as many people as he or she wants) without having to pay any taxes on the gifts.

  • Financial support may be provided to help adult children achieve major life milestones such as purchasing a home, starting a business, or getting married. It’s important to discuss budget and expectations for these “one time” monetary gifts.

  • Almost 45% of people ages 18 to 29 are living at home, roughly the same level as it was in the 1940s. [ii] One contributing factor is the median national rent has climbed to $2,052.[iii]

  • In a study of high-net-worth families, it was found almost 70% of family wealth is lost by the 2nd generation and nearly 90% is lost by the 3rd generation.[iv] 

By offering guidance, support, and encouragement, you can help your adult children develop the confidence, knowledge and skills needed to effectively manage their money and achieve financial success. Every family dynamic is different. If you’re worried about how much you’re supporting an adult child, start with to talking to your wealth advisor. At Clearwater Capital Partners, we’re here to help you analyze the numbers, and see how the financial support you’re providing impacts your current situation as well as your family’s wealth for generations to come.