Five [Additional] Rules When Talking to Adult Kids About Money

More than 22 million adult children between the ages of 18 and 34 are living at home with their parents1. This phenomenon is partially driven by the financial realities facing 20-somethings today, but it also illustrates the strong ties that exist between boomer parents - who have been scrutinized for "hovercraft parenting" and their boomerang kids. The U.K. Journal, Psychologist, found that more than half of millennials phone, text or email their parents nearly every day.2 Despite communicating frequently and openly about everything from playground gossip to conflicts at work, however, there is still one topic that families continue to avoid around the dinner table: money.

According to a 2016 study, more than one-third (34%) of millennials admit to finding it difficult to start conversations with their parents about saving and investing.3 If they are struggling with these "entry level" financial topics, it is hard to imagine millennials addressing the more sensitive (yet necessary) conversations, such as estate planning.

While Glenn Kurlander's article, "10 Rules for Talking to Kids About Money," remains highly relevant when talking to kids of all ages, we have added five additional rules that apply specifically to some of the challenges parents face when broaching this taboo topic with "adult" kids.

1. Be smart about how you support. No matter how old or "grown up" your child is, it's a mistake to think that a parent ever ceases to be a parent. You will always have a responsibility to mentor and guide your children as they tackle life's many obstacles. However, this unconditional support does not necessarily need to extend to the financial realm. The proverbial financial chord may never be severed completely, but it is often in your child's best interest for them to establish a certain level of financial independence.

According to a 2015 Pew Research Center study, 61% of U.S. parents admitted to helping an adult child financially4. Amongst parents who admitted to providing this type of support, 58% said it was for "special circumstances," with the remaining funds going to recurring expenses. Parents often have good reason for offering financial support to a child, but it's important to be thoughtful about what the money is being used for. Moreover, consider developing a contingency plan in advance and establish clarity around terms and timeline. Paying for your child's recurring expenses through a direct deposit can be dangerous, for example. Both parties can easily forget about the monthly transaction and you could be preventing your child from learning important lessons around money management. Instead, consider giving your child a check and letting them allocate it on their own for a few months and then scheduling a more formal check-in every few months to see how it's going.

2. Create a culture of "family partnership."Glenn Kurlander notes that, "one of the biggest concerns I have encountered among parents with considerable means is the fear of raising entitled children." He believes that the best way to prevent this sense of entitlement is to create a culture of family partnership. In other words, driving the philosophy that "we're all in this together," and that while you are prepared to use your family's wealth to help your children in meaningful ways, you are not prepared to remove every obstacle or challenge from their path. Denying your child the opportunity to learn some life lessons on their own (even if it's the hard way) could end up hurting them in the long run.

3. To trust is relative. Trust is an important component of any conversation related to money. While you may trust your children and their ability to make smart financial decisions, you may not necessarily trust the people they choose to listen to. Because it's hard to predict who your child may be influenced by in the future (perhaps when you're no longer around to make your case in person), you may want to consider using certain wealth management structures (such as trusts) to protect the family wealth.

To avoid resentment and confusion in the future, it is important to explain your rationale to your children: make it clear that your primary objective is to protect them and your family's interests - it is not a reflection of a lack of trust or a desire to limit their financial freedoms.

4. Family finances are never one-size-fits-all. As parents, you will have to decide what's "fair and appropriate" for your unique family. This is particularly relevant when it comes to estate planning. In some families, "fair and appropriate" may mean giving equal amounts to each child; in other families, fair may mean treating each child differently based on their individual needs or challenges.

Whatever you decide, it is important to clearly communicate your decision sooner rather than later. As Glenn Kurlander observes, "humans, like nature, abhor a vacuum, and if we don't provide our children with our narrative, they'll make one up themselves." To avoid dreamed-up scenarios like "mom and dad don't love me as much," make a point of explaining why you chose to structure things in a certain way and give them the opportunity to ask questions.

Whatever challenges you face or conversations you need to have, remember that your Financial Advisor can act as a resource and a buffer. They can be present to facilitate the discussion in person, or help you prepare talking points in advance.

5. Use your resources, even the small ones. Even when your children have children of their own, it's not too late. In fact, this momentous event in their lives may present an opening: a timely reason to start a conversation about the family finances. Whether you want to encourage your children to become more fiscally responsible themselves, or address sensitive topics such as your own estate plan, grandchildren can help break the logjam and diffuse the situation: "Now that there's another generation in the picture, we want to make sure that you are planning appropriately and responsibly for them."

For more helpful resources including tips and insights on navigating various life milestones, contact your Morgan Stanley Financial Advisor.

1 "Helping Adult Children", Pew Research Center (2015)

2 "The Ascension of Parent-Offspring Ties", Karen Fingerman. Psychologist Journal. Vol 29. (Feb. 2016)

3 Millennial Money Study, Fidelity Investments® (2016)

4 "Helping Adult Children", Pew Research Center (2015)

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