3562: To Fund or Not to Fund Your Young Adult by Dr. Jack Stoltzfus of Parents Letting Go on Smart Financial Support

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[00:00:30] Welcome back to our Sunday bonus episode, where I share an article with you from a different podcast on our network. Today's episode is coming from Optimal Relationships Daily. So with that, here's Greg with the post and commentary as we optimize your life. To Fund or Not to Fund Your Young Adult by Dr. Jack Stoltzfus of ParentsLettingGo.com

[00:00:57] One of the most significant challenges parents face is when to step in financially to help their adult children. The fundamental question is whether such help would lead to greater independence, self-sufficiency, or dependence on parents. More factors contribute to the need for financial assistance today than 20 or 30 years ago. These include the cost of post-secondary education and the burden of school loans.

[00:01:21] The average federal loan debt has more than doubled since 2007, from $18,233 in 2007 to $37,575 at the end of 2022. Beyond this, the cost of housing, whether apartment living or ownership, has become prohibitive for young adults.

[00:01:42] According to the U.S. Census Bureau, renters spend 30% of their income on housing, including 23% who spent 50% in this way. Combine these costs with the increase in inflation and the challenge for young people is daunting. Given these challenges, there is no surprise that 52% of young adults from 18 to 29 were living with one or both parents in 2020, according to a PEW study.

[00:02:11] Parents, ask yourselves three questions. Why, when, and how should I financially step in to help my young adult? Why to step in? The answer to this question relates to both the parent's capacity to step in and the needs of the young adult. Many parents don't have the means to step in or are entering the retirement period and don't want to diminish their savings and put their retirement at risk. For parents who can fund young adults, doing so may not be the right choice.

[00:02:41] Does the young adult have a need, like those listed in the next part of this article, or a want, like a new car? Just because you can fund doesn't mean you should. Most parents have had to struggle at times to make ends meet, and as a result, they are stronger and more confident about their ability to face financial crises. Do we want to rob our children of this life experience? It's okay to say no.

[00:03:06] At the same time, we don't want our children to suffer financially or otherwise because of mistakes made or no fault of their own. Parents need to consider the impact of subsidizing the young adults on the relationship as a whole. Are they asking for help? Will they feel uncomfortable if help is given? Will this lead to them becoming more financially independent and self-sufficient or greater dependency? When to step in?

[00:03:33] Some of the common and reasonable ways parents can financially help their young adults are as follows. Help with wedding costs. Help with a down payment on a house. Help with the purchase of a car needed to get to work. Initial help to get into an apartment if that is what is needed for them to move towards independence. Security deposit, several months' rent, etc. Help with daycare costs. Or provide daycare a few days a week if able to. Help with insurance costs.

[00:04:03] Medical and auto, where lack thereof, could lead to catastrophic outcomes. Contribution to a 529 plan for grandchildren. Help with unusual or excessive medical bills, disability costs, significant medical deductibles or surgery co-pays, or treatment costs for debilitating conditions or accidents. Help with in vitro fertilization expenses as well.

[00:04:27] And help with counseling, vocational, mental health, substance abuse, or vocational where insurance does not cover. Some young adults avoid these services because they say they cannot pay for them or even cover the co-pay and deductible. This is money well spent, but understand that with HIPAA requirements, you will need help to get information from the treatment facility or service provider. How to Step In When deciding on providing some subsidy to your young adult,

[00:04:56] consider how to do this in a way that helps them keep skin in the game, but does not create greater dependence. If the young adult needs money for a down payment on a house, or providing funding for a wedding, if given as a gift, you can't judge or try to control their decisions on how to spend the money. If you want to contribute as a gift with no strings attached, it is essential to let this be known and stick to this commitment. On the other hand, if you are funding their education, you need to know that you are getting some return on this investment.

[00:05:27] Adults in post-secondary education supported by parents must provide midterm and final grades to ensure the investment pays off. I've seen quite a few young adults go to college. The college tells the parents that they cannot provide information on the young adult's academic performance, only to find out at the end of the semester that their child has stopped going to classes and the parent can't get their money back. Outside of education and the need to know, parents should consider ways to cost share

[00:05:55] or match young adults' contributions. This ensures that the young adult has skin in the game. For example, help purchase a car for work, but require the young adult to match your contribution. I've worked with parents to gradually reduce their subsidy for an apartment for their employed son, requiring the young adult to take on more responsibility. If you consider a loan, it's essential to spell out the terms in writing, similar to what the young adult would experience in obtaining a loan from a bank or credit union.

[00:06:25] Interests, payment terms, length of the loan, etc. Some young adults may find this business-like approach affirming them as adults, but enabling them to get a better rate from mom and dad's bank. Some parents have signed on with the bank, but the term stipulated that the young adult was responsible for meeting the loan requirements. In all cases, as much as possible, avoid giving out money with some expectation, which is essentially blackmail. If you give this money,

[00:06:54] you will promise not to spend it on illicit narcotics, new video games, gambling, etc. Such a reward before a behavior change typically doesn't work and will damage the goodwill between the parents and the young adult. Money up front is another instance when a parent may need to just say no and stand their ground. At the end of the day, a parent needs to ask three questions regarding financial support or other decisions.

[00:07:20] Am I acting primarily out of love and not fear, worry, anger, anxiety, etc.? Am I acting aligned with my principles, honesty, responsibility, etc.? And will my decision increase my young adult's independence and self-sufficiency or lead to greater dependence? You just listened to the post titled To Fund or Not to Fund Your Young Adult

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[00:09:15] So Dr. Stoltzfus' mission is to provide information, education, guidance, and resources to parents of young adults who are struggling to launch or let go while maintaining a positive, caring relationship with their young adult. For more than 35 years, Dr. Stoltzfus has worked with parents and their young adult children within the context of a chemical dependency treatment program, an inpatient mental health facility, a child guidance clinic, a youth service agency,

[00:09:44] and a private practice. Originally, Dr. Stoltzfus was trained as a marriage and family therapist working with parents and their adolescent children. But now, his practice is focused on parents of emerging adults, millennials, and the next generation of soon-to-be young adults. And you can tell that he does wonderful work. This article was really thorough, touching upon a part of parenting that we haven't looked at before, I don't believe, here on ORD. It's really important, however, especially today, as he mentioned.

[00:10:13] And if funding your child is something that you're on the fence about, I think another good place to start, in addition to everything that we heard today, would be by observing their money mindset and their money behavior thus far. How have they spent both your money and any money that they might have earned on their own? Has it been responsibly? Has it been risky? Has it been conservative? What have you observed? And is there any reason to believe that it might be different

[00:10:42] in either direction going forward? I think that this question is a great place to start when ultimately looking to answer that last question he provided us with of whether this will lead to greater dependence or independence? So, think on that, everyone. It is time to get going. But another big thank you to Dr. Jack for this great article. Welcome aboard, and I look forward to sharing a lot more of his work in the future. But for now, enjoy the rest of your day, folks, and I am excited to see you here for another post tomorrow.

[00:11:10] That's where your optimal life awaits. Thank you. Thank you.