Parents, Protect Your Wealth

Learn to say no to your adult children, so you can say yes to your own financial security.

- Alfred Edmond Jr

CLOSE THE BANK OF MOM AND DAD

DO YOUR ADULT CHILDREN STILL rely on you to finance their lives and lifestyles? It is likely about time to close the bank of mom and dad.

One of the most important keys to your long-term financial security, as well as to the financial accountability of your children, is how quickly you eliminate their dependence on your financial resources as they transition into independent adulthood. This is especially important for “sandwich generation” families; these are families led by people who take on financial and care giving responsibilities for aging parents while simultaneously funding college and other expenses for their children. What is often neglected in this scenario is planning and saving for retirement. The more prepared children are to take responsibility for financing their lives and lifestyles, the more resources their parents can free up to see to other needs, including retirement savings.

While it may spark disappointment and even resentment, you need to be ready to close the bank of financing your adult children—for their sake and yours.

Here are three things to focus on:

1. Don’t Be Their Emergency Fund.

One of the first rules of money management is to create an emergency fund that is equal to at least six months of your household expenses. I call this the “income interruption fund,” which is to be touched only in cases where your income is lost or significantly reduced—for example, because of a layoff or a serious illness. The idea is that this money will buy you time by helping you keep up with your bills— and other obligations—until you can replace the lost income.