Cutting the cord on support for adult children

Parents are financially helping their adult children
Parents are financially helping their adult children

Subsidizing your adult children's living expenses could be a really terrible financial decision — or a great one, depending on the arrangement.

Nearly half of millennials say their parents have covered some expenses since they have been on their own, and 21 percent are living with Mom and Dad, according to a new survey from Fidelity. (See chart below for some of the common expenses parents help with.)

The survey polled 615 adults, including 305 millennials age 25 to 35, during late July and early August. The margin of error on the millennial data is plus or minus 6.3 percentage points.

The bright spot is that millennials seem to be using that help to improve their finances rather than live large, said John Sweeney, executive vice president of retirement and investing strategies for Fidelity. Of those getting help from parents, 85 percent said the boost has enabled them to start saving, and 60 percent are able to put money aside for retirement.

"They're also preparing emergency funds in a way we haven't seen, historically," he said.

Half of Americans say they don't have adequate emergency savings to cover an expense of even $400, according to 2015 Federal Reserve data. The millennial savers in the Fidelity survey have average emergency fund balances of $9,100.

That's great for the kids, but make sure helping doesn't derail your own finances.

Before you offer to help (or keep helping, if you already are), take a look at your own financial picture, said Lynn Ballou, regional director for EP Wealth in Lafayette, California. Even small expenses, like having your adult child on the family cellphone plan, add up, and that's extra money you could be putting toward retirement or other goals.

"Your heart can sometimes be bigger than your wallet," she said. "If somebody is struggling to meet their own financial goals we don't want to be encouraging that behavior."

Parents and children should hash out a defined purpose and timeline, said Mark Prendergast, director of tax strategies for Inspired Financial in Huntington Beach, California. For example, you could let your child stay at home while she saves up the deposit to rent an apartment, or you could help with the utility bills only while he's between jobs.

"We try to encourage our clients [to think], 'How can you best make your child responsible?'" he said.

Observe your children — and ask them outright about their needs — to make sure you're offering the right kind of help. Ideally, your contribution would help your kids get on firmer financial footing, not live beyond their means, Sweeney said.

"When your children have their own resources and are able to get on their feet, ask them to pick up those expenses," he said.