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Key Takeaways
- Clients commonly ask whether they can send a one-time or ongoing financial gift to an adult child or loved one.
- The impact of financial help depends entirely on the client’s overall situation and needs to be re-evaluated regularly.
- Non-financial support can sometimes be more helpful—and more sustainable—than writing a check.
- Thoughtful, respectful conversations about financial support can uncover options
Many of my clients are in midlife and beyond. Often, a conversation that arises centers on their family members and ensuring they are financially stable.
It’s natural for clients to offer some financial support to their loved ones, whether adult children who may be struggling or even their own parents. The requests range from “Can I send my daughter $10k?” to “I need to pay my son’s rent for…” who knows how long.
Note
According to a survey conducted by AARP, 75% of parents are financially supporting at least one adult child (age 18+), even though more than half of these children are capable of meeting their basic needs with money left over.
As financial advisors, we know that gift-giving and financial support can have negative consequences. Part of our job as planners is to help our clients understand them. Whether it’s the impact on their own finances or the message it sends to the recipient, it’s essential that we guide our clients to the best financial choices.
What I’m Telling My Clients
It can feel tricky to think about how much or whether to give to loved ones. However, here are some baseline steps I tell my clients when they are considering this issue:
1. Do Your Financial Projections
Given your resources and expected cost of living, how’s it looking for retirement? Meaning, without financially supporting your loved ones, is your money likely to last as long as you do? This is where you have to start and work from.
2. Think About What Level of Support Could be Meaningful
Would a one-time gift make a significant difference, or would we be talking about a sustained period of time? $5k or $50k? Then plug those hypotheticals into your projections from above. What’s the potential impact? This can help to set your limits.
3. Open the Conversation
The type of conversation you have will vary depending on who you are talking to. Regardless, opening up conversations about finances in a respectful and appropriate way can be beneficial. For example, it’s possible that even a smaller gift than you think could be impactful and greatly appreciated. Are there other meaningful ways you can help outside of giving a financial gift?
Example Scenarios
Let’s take a real-life scenario. I recently told a woman that she can make annual gifts to her adult daughters, but it should be reevaluated periodically. If she experiences low investment returns and/or higher-than-anticipated costs, she may need to cut back. She was perfectly OK with that.
Another woman feels obligated to support her mother, but really doesn’t have the means. We talked about other ways she could help without writing a check, like researching community services, helping her mom understand Medicare and Medicaid, and connecting her with local groups. Those actions could be much more impactful (and sustainable!) than sending a couple of thousand dollars.
The Bottom Line
In the end, it’s very important to our loved ones that we ourselves be financially stable and resilient. They likely don’t want us to end up couch-surfing at their home. So, it’s not selfish to put our own retirement finances first. By taking the necessary steps to evaluate if it’s worth giving a gift, you can feel confident in whatever choice you make.
