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Giving money to adult children could trigger your financial ruin

  • A new study shows that 74 percent of parents with adult children are continuing to help them financially.
  • Giving money to adult children can prevent you from adequately preparing for retirement.
  • Advisors recommend you take several steps to protect your financial security.
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You might want to think twice before giving money to your adult child.

A new study from CreditCards.com found that 74 percent of parents with adult children, defined as 18 and up, are continuing to help them financially.

Of those parents, 84 percent are helping with living expenses, while 70 percent are assisting with debt.

Cell phone bills, followed by transportation, rent and utilities, tops the list of living expenses, and with debt, parents are most commonly helping with student loans, followed by auto bills, medical debt and credit card bills.

"The worst case scenario is because the parents have helped their kids, and sacrificed their retirement, in 20, 25 years, the script might get flipped and the kids might have to help out their parents because they can't afford to retire," said Matt Schulz, senior industry analyst at CreditCards.com. "There is a real risk there."

If you find yourself wanting to limit the financial ties between you and your adult children, financial advisors recommend you take these steps.

Have a clear conversation

Parents can get into a pattern of paying for their children's expenses without ever having a conversation about it, according to Aaron Thompson, a financial advisor at AGT Wealth Management in Annapolis, Maryland.

That includes regularly contributing to their child's rent or other expenses. The funds lost can make a substantial dent in your lifestyle over time, said Thompson, who has seen examples of this in his practice.

"There's nothing left for them to enjoy because their kids are consuming most of what's left," Thompson said. "The kids aren't out to hurt mom and dad, but they know it's a resource and they use it consistently."

Parents can prevent this by having a talk with their children that communicates clearly, "You still needing me is draining mom and dad," Thompson said.

Put limits on the help you provide

Financial advisor Tom Balcom, founder of 1650 Wealth Management in Fort Lauderdale, Florida, said he has seen clients who take on their adult child's bills when the children lose their job.

The result is that the parent is not only providing for their child, but also their grandchildren as well.

Parents in that situation need to make it clear that that level of help is unsustainable long term, Balcom said. That includes giving children distinct choices: Find a job and pay me back or downsize.

Thompson advises that you also learn to say no with your children and stick to your decision.

"You have to allow people to fall in order to be able to stand up on their own," Thompson said. "If you continue to provide the clutch, it's not going to allow them to become stronger."

Watch for conflicts

If you have other children, you need to think about how your decision to help one child will affect the rest of the family, said Mitchell Kraus, financial advisor and owner at Capital Intelligence Associates in Santa Monica, California.

Kraus said he has seen how financial help that is provided to one child can create rifts between siblings.

"When these things happen, somewhere the children believe that their mom or dad didn't love them as much because they did XYZ for their siblings," Kraus said.

Parents can prevent this by having a family conversation before they provide any financial assistance.

Many times, children will agree to help their sibling out. But parents should be prepared for demands that they make their assistance equal in some way, according to Kraus.

"Often parents are shocked to have that come back at them," he said.

In the long run, having those difficult conversations will lead to better relationships later on.

"Opening up the subject might have you step backwards in the short term, but help you move forward in the long term," Kraus said.

The CreditCards.com online survey included 1,092 adults in the U.S. who have children ages 18 and up. The majority of the adults who participated were 53 and older.

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