Financial advice: ‘I want to cut the cord on paying for my son and start saving for myself’

This month, our financial columnist Lorraine Donegan answers a great reader question from Dorothy in Tipperary…

“I still pay for my 28-year-old’s healthcare and occasionally even help out with rent. I would like to start enjoying my money again, but not sure how to cut the cord. Any advice?”

Oh boy, this is certainly an on-trend question! As a financial advisor, it would be very easy for me to respond by saying, “Cut the purse strings… You’re doing them no favours… they need to grow up!” But, I think that’s nonsense.

The truth is that we’re living in a country that makes it extremely difficult for young people to establish any independence. A closed property market, sky-high rent and barriers to secure employment mean that most people in their twenties are still on shaky financial ground. This means that they are often reliant on the continuing generosity of their parents, even if it places a financial strain on the older generation.

So what can you do?

Well, the first thing you need to do is get your facts right so that you can have an adult conversation with your child around the reality of the situation.

• Does your child even know that you are still paying for their healthcare?
• How do you help with rent exactly?
• Are they genuinely struggling to make ends meet or simply spending too much on
  “discretionary things” and then coming up short at the end of the month?
• How much does your generosity cost you financially?

Next, guide your child to create their own financial plan. This doesn’t need to look decades into the future, but should cover the next five years at a minimum and include items such as financial goals, awareness of income and expenses and contributions towards an emergency fund, savings and debt repayments. Chat to your child about what they should include in the plan based on your own experience, or if that’s too sensitive, send them to an independent advisor who will make one with them. Often it is more impactful for an objective expert to analyse and assess your finances than someone close to you.

At the same time, use this opportunity to assess your own financial circumstances. Are you looking to stop these contributions because they are impacting your own lifestyle, or is it because you think it’s the right thing to do for your child? If your lifestyle and level of personal comfort is affected by your generosity, then it is time to speak up and hold your child to account for their own welfare.

I strongly advise that you work with someone to create a proper financial plan that breaks down your needs and measures exactly how your generosity is impacting you, in the short and long term. By getting independent advice, in a written report, you can take some of the emotion and guilt out of any decision that needs to be made.

If, on the other hand, your generosity is not impacting your lifestyle and you are nearly or already retired, then ask yourself, “Are your assets likely to outlive you and pass on to the next generation anyway?”

For clients in a comfortable financial situation in their late fifties or sixties, I often ask, “If you knew it wouldn’t impact your future finances in a negative way, would you prefer to help your children when they’re struggling to pay for education, start in employment or get on the property ladder?” People usually don’t realise that they can gift their children money right now rather than wait until they die.

In the end, you’re not alone in your dilemma, Dorothy! Thousands of families face the exact same predicament as you do. And there’s no easy answer, unfortunately. The best thing you can do is explore all your options and do what’s right for you.

I hope this helps.
Until next month,
Lorraine

Lorraine Donegan, aka the Money Muse, is a CEO and founder at Donegan Financial Services. If you’d like to ask any specific questions about any finance-related topic, email lorraine@doneganfinancial.com

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