When is it time to close Mom and Dad’s Bank? Wealth managers advise on the best ways to support your adult children in the face of a looming recession.

Parents of adult children in the US are considering retiring or refinancing their homes to support their children’s bank accounts, and requests for cash will only keep coming.

But when is it time to close Mommy and Daddy’s Bank to protect your own financial security, especially in the face of a global recession?

Economists are divided over whether the US will plunge into a major recession. The group’s most optimistic members cite a slowdown in US wage growth that has accelerated inflation, and on Thursday the Bureau of Labor and Statistics announced that US inflation fell to its lowest level in more than a year.

Others, such as Nouriel Roubini of New York University’s Stern School of Business, have said the world is on its way to a “train disaster.”

Mohamed El-Erian, president of King’s College, Cambridge University, warned that the chance of a recession in the US is “uncomfortably high”.

What is clear is that business leaders lack confidence while many people are panicking about their financial security.

During the pandemic, younger generations have increasingly had to rely on the support of their parents after being thrown into the world of work, often with no previous experience or savings to fall back on.

College-aged kids are now increasingly panicking about their financial stability – a recent study found they are just as worried about inflation and recession as they are about mass shootings.

Last spring, Savings.com found that one in two parents of children aged 18 and over is helping their children make ends meet. In fact, parents spend 23% more on their children’s expenses ($605 per month) than on their own pension or savings ($490 per month).

Of the 1,000 parents surveyed, the majority had children under the age of 24. At the same time, 17% provided financial assistance to descendants aged 25 to 29, and 19% provided financial assistance to children aged 30 and older.

Check out this interactive chart on Fortune.com

The study also found that 25% of parents were willing to withdraw cash from their savings or retirement accounts, 17% would take on debt, 9% would be out of retirement age entirely, and 7% would jeopardize their homes by refinancing.

Children primarily spend their parents’ money on basic necessities such as food and rent, however 46% of parents have also seen their money used for recreation and 66% report covering their children’s mobile phone bills.

When should parents reduce or stop financial support?

So how do parents balance their financial needs with those of their children? The answer lies in preparing children for success as early as possible, money managers say.

“Children can enjoy productive housework, for which they can receive benefits and buy things they have long wanted, or enjoy saving money. Looking a little further, parents should consider what will best prepare their children. stand your ground, as long as there is no dynastic wealth involved,” said Kevin Philip, managing director of Bel Air Investment Advisors.

“Too many families seem to be hoping for a lottery ticket in sports or entertainment for their children when the reality of it becoming a successful career is very small. a variety of extra-curricular experiences that interest them and ideally strengthen their resumes.”

Paul Denley, chief executive of London-based investment firm Oakham Wealth Management, echoed this, adding: “There comes a time when it’s good for any young person to feel independent and stand on their own two feet. start at school, university, or college—it makes sense for students to find vacation or part-time work, get a feel for what it means to work and get paid for it, and weigh the value of the money earned from the effort. .

“If you are served everything on a plate, you may not feel like any success is really yours. How much nicer is it to buy your first pair of high heels from Christian Louboutin or pay for a scuba vacation when you’ve already earned your own money? It is clear that these are examples of luxury, but the same can be applied to more modest ambitions.

What is the best investment for kids?

The experts added that, in addition to health insurance, investing in a child’s education, psychological well-being and self-confidence is the best way to prepare him for later life.

Philip continued, “From a financial standpoint, the 529 education savings plan is useful, and once income is generated, it should be encouraged, but not required, to maximize the use of ROTH IRAs, traditional IRAs, and/or 401k. In most cases, it is impossible to do everything. For example, in the first few years after buying a house, a person may not be able to make all contributions to pension plans, but I think this is normal.”

Denley added that parents should stay away from “lifestyle” support, adding: “If parents set up a baby fund at birth with the intention of gifting a stash to a child in their 25s or 30s, that represents a significant investment period, including many investment cycles. and reinvesting dividends will result in compound returns. Between December 1978 and December 2022, the MSCI World Index averaged over 10% per year, a rate of return that would double the initial investment every 10 years.

“The main challenge is to ensure these savings don’t get in the way (i.e. don’t get wasted) along the way.”

What should you teach children about assets?

Helping your kids understand what questions to ask and who to trust with financial management is key to their financial success, Philip added.

Parents should also strive to educate their families about stocks by helping them set up their own accounts and helping them average out monthly spending in index funds.

A personal finance expert emphasized that trusts with built-in lender and asset protection can be created, and if they are not, prenuptial agreements in future marriages may be “prudent.”

How should parents feel about talking about living expenses?

When a child graduates and is looking for a job, it is a signal to parents that it is time to take a step back. Denley said considerations about how much financial support is needed boils down to how much it takes for a graduate to focus their energy on finding paid work.

“It would be unwise to provide them with their own accommodation if they can do what they need from the family home until they can afford their own living expenses. As soon as the daughter or son is employed, the parents can help with a deposit for the apartment. and buy a few pieces of furniture so their prodigy can focus on their new career and not sleep on the floor.

“Another consideration is not to give a regular allowance, but to provide additional resources upon request. This at least makes the child beg for money instead of expecting it to come from the magic money tree,” he added.

This story was originally published on Fortune.com.

More from Fortune:
Air India has been accused of a “system failure” after a disobedient male passenger flying business class urinated on a woman flying from New York.
The real sin of Meghan Markle, which the British public cannot forgive, and the Americans cannot understand
“It just doesn’t work.” The world’s best restaurant is closing as its owner calls the modern model of fine dining “unsustainable”.
Bob Iger simply stood his ground and told the Disney employees to go back to the office.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button