Helping Financially Dependent Older Children

By Zoe Bailey, Chartered Financial Planner

A perfect storm of financial stresses

Even after a year (2020) of constant personal and professional disruption, some parents are still faced with the challenge of having to support financially dependent children or other family members as well in 2021. And the combination of a shifting economic landscape, lack of job security and unemployment for some, ongoing lockdown measures, and the aftermath of Brexit will do little to dispel parental concerns.

The so-called “Boomerang” trend whereby young adults, who are often still financially dependent, return to the family home after university to avoid high rent costs while jobhunting, only leaving when they’re well into their 20’s or early 30’s is now thought to be a permanent feature in UK society.

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However, as a result of Covid-19, especially for parents juggling young children as well as adolescents, household budgets suddenly felt that much tighter for some, as older children also returned to the coop during lockdown periods. Indeed, parents were twice as likely as those without children to admit they struggled financially during the global health pandemic.

The ability to pay rent or a mortgage was also made more difficult, with half of the parents of young children saying they were worried about their ability to afford it, compared to 20% of other respondents. And many will still have concerns about continuing to keep their family financially afloat well into 2021 when hopefully the economic impact stabilizes, and the job market bounces back.

This is evidenced by Tilney’s research which revealed just how fragile parent’s finances have become, with a third (34%) of adults admitting they would be negatively impacted financially for the next 6 months if their children or a family member needed immediate financial support. This rose to over half (51%) among parents aged 35-44 years old.

And it’s not just the parents dealing with overstretched finances, 45% of young adults admitted they too would be negatively impacted financially for the next 6 months if a family member suddenly needed financial support.

Getting clear on potential issues

However, if parents and those with financial dependents are not careful, financially supporting loved ones can quickly cause a real drain on their long-term savings, retirement funds and can even impact their children’s relationship with money as they get older. Indeed, while older children may be saving money by dodging high rent and utility payments by moving back into the family home, that’s not to say the extra mouth(s) comes cheap!

financially dependent

That is why it’s so important for parents, whether their kids are coming back at home or they expect them to be staying for the foreseeable, to take steps to reassess their current financial health. Importantly, this includes understanding their basic required expenditure and maybe where they could be saving, as this will help parents get in a better position to respond to the additional cost of financially supporting older children.

While support measures have been and continue to be useful for some, not everyone is entitled to financial aid. Where possible, parents should instead endeavor to have some ‘rainy day’ savings put aside of at least 3-6 months basic expenditure in cash for emergencies to provide a financial buffer. Parents should also capitalize on the opportunity to talk to their children about their savings, and why getting a solid financial buffer in place is key.

If your children are currently remote working, starting a new job or on the job hunt, show them how useful this cash safety net is during unusual times like these – it’s a great lesson for the future. Depending on your local restrictions, you may be in a position to encourage your child to seek out other sources of income while they’re waiting for the job market to improve. Aside from their own expenses and contribution to the household, anything they make now can then be saved for their own future.

What’s more, parents need to make sure they don’t give their older children money that is an amount higher than or outside the scope of their normal budget. This can feel extremely difficult, particularly when you want to try and cheer them up while they’ve been stuck inside for weeks without their normal social events. This is where specifying whether your financial help is a loan, or a gift comes in handy.

Communication is key!

Having an open discussion and drawing up a “contract” between you both will teach them more about personal finances and remind them of the responsibility to repay the amount, in installments or as a full amount, by the date you both set. If the terms need adjusting, you can discuss what works best for you too.

For parents who have children still working full-time from home, then agreeing some financial parameters, like affordable contributions towards bills, food and utilities, or asking them to pay for certain items is another way to maintain some parameters, teach them about running a house and also provide a small regular income for you while they’re living back under the family roof again.

While the upheaval caused by the pandemic has made planning ahead more difficult, that’s not to say you can’t do it and it’s certainly easier to financially prepare than repair. This is especially important for parents to remember, as without a plan they could risk depleting or drying up their retirement savings altogether.

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Don’t be a martyr for your financially dependent kids!

All of this comes down to educating yourself on your finances, working out your true basic required expenditure, stricter budgeting, setting financial boundaries with your family members and still trying to think about the long-term by estimating how long it’s going to take to recover any reductions in your savings you have had to dip into recently.

While it is understandable that many young people will be dependent on some sort of financial support for the foreseeable, and that parents will want to help, it’s critical that parents don’t get carried away and cease thinking about themselves and their financial future.

Instead take this time to educate your children around personal finances, show your children the household monthly budget, the anticipated expenses and how much extra you can live without before it starts eating into your retirement savings. Your finances and your relationships will be all the better for it.

You may also like: How To Achieve Greater Financial Independence and Dealing With Stress Around Financial Problems

financially dependent

Zoe Bailey is a Chartered Financial Planner and Director at Tilney. Zoe holds an Advanced Diploma in Financial Planning, an Investment Advice Diploma, and an MA in Economics, and her areas of expertise include pension and retirement planning, and advising divorcing couples with their settlements. Zoe is passionate about helping people understand and achieve their financial needs and objectives, regardless of what stage of life they are in or their financial and personal circumstance

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