Nearly half of young Americans rely on the bank of Mom and Dad to get by — when’s the right time to exercise tough love and turn off the tap?

Risks to parents

While providing financial assistance to adult children can be a way for parents to show support and ensure their children’s well-being, it comes with significant risks, chiefly the impact on the parents’ own financial security and leaving their children unprepared to handle their own finances.

Financial expert Suze Orman warns that continuing to support adult children can severely compromise parents’ ability to retire comfortably. Orman argues parents often underestimate the long-term financial implications of this support, which can reduce their own savings when they need it the most.

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Impact on retirement savings

Parents who use their retirement savings to support their adult children may find themselves in a precarious financial situation. Some parents are still supporting their children well into their 40s, delaying their own retirement and putting their financial future at risk. This prolonged financial support can lead to parents working longer than planned or significantly adjusting their retirement lifestyle to accommodate the shortfall in savings.

The lack of adequate retirement funds can lead to a reliance on social security benefits, which may not be sufficient to cover all expenses, particularly healthcare costs that tend to rise with age.

When to cut your kids off

Finding the right time to end financial support for adult children is a delicate balance. Orman advocates for clear and early boundaries to encourage financial independence, suggesting parents should gradually reduce their financial support and encourage their children to own their finances.

Parents can help by providing financial education, such as budgeting, saving and investing, to prepare their children for independence. It’s also important for parents to be transparent about their own financial situation and the necessity of safeguarding their retirement savings.

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Practical steps for parents

Set clear boundaries. Establish clear expectations about the level and duration of financial support. Communicate openly about the need for your children to become financially independent.

Educate your children. Provide financial literacy education to help your children manage their finances effectively. This can include lessons on budgeting, saving, and investing.

Gradual reduction. Gradually reduce the financial support you provide to ease the transition. This will help them adjust to managing their own finances without a sudden shock. A baby step might involve asking the child to pay for their own mobile phone plan or to secure their own auto and health insurance.

Focus on retirement planning. Prioritize your own retirement planning to ensure you have sufficient funds to support yourself in your golden years. Seek professional financial advice if needed.