retirement cut off kidsWith the cost of college rising and the economy still hindering young graduates’ ability to stay afloat, more parents are raiding their retirement and savings to help their kids pay for life on their own.

National financial planning firm Ameriprise Financial asked more than 1,000 baby boomers if they provided some level of financial support to their adult children and 93 percent said they are helping out in some way. That number hasn’t been significantly impacted by the recession, either—in a similar survey conducted in 2007, 92 percent of baby boomers said they helped their adult children.

What has changed, however, is how this financial aid is impacting the parents themselves. In the same survey, only 24 percent of those parents said they were putting away money for their own future. That number is down 44 percent from the 2007 survey.

This means that while parents have been financing their adult children for some time, they are increasingly doing so at the expense of their own financial comfort, said Cathy Pareto, a Miami-based Certified Financial Planner.

Pareto has worked with clients for more than 15 years and sees this scenario play out time and again. Recently, she said, she met with a father who had successfully secured his retirement when his son asked for help with medical school.

“He told me, ‘I feel like I should be helping him, and he doesn’t want to get these really high-cost loans, and I’m feeling some pressure from my wife, so what do I do?’” Pareto said. “They had just enough for their retirement, and they didn’t have enough to help pay for their son’s second education.”
How parents help their adult children financially—and when to stop

Parents are helping their children with their education, car payments, car insurance, and bills. They are and even helping their children buy homes and allowing them to move back into their homes rent-free.

On average, parents have given their young-adult children (ages 19 to 22) about $7,500 a year, according to a new study by the University of Michigan for the MacArthur Network on Transitions to Adulthood, which conducted 2,098 interviews between 2005 and 2009.

That $7,500 a year won’t even come close to paying the cost of tuition. Annually, college costs an average of $17,131 a year for an in-state four-year public school and $38,589 annually for a private-college education, according to the College Board.
Plus, the rate of increases in college tuition far outpaces the rate of inflation, leaving many parents who help their kids with college strapped for cash, even if they did start saving early.

When thinking about helping your adult children, Pareto suggests the same she told her client whose son needed help with medical school—at some point, you have to say no.
“You probably feel compelled to give your kids everything you can—maybe more than you can —because you’re their parent,” Pareto said. “But honestly speaking, at some point you’re doing a disservice to yourself. You’re putting your own security at risk. So what kind of values are you really showing your child?”

Instead of meeting the demanding price of college or relenting whenever the kids request money, parents need to instead determine what they can comfortably spend on their child’s education or what help they can offer with costs like rent or car payments, if any.

In lieu of giving your kids cash, give them some of that hard-earned life knowledge. Help them learn how to read their credit report and credit score, figure out where their income will come from, whether it’s scholarships, loans, or jobs, and what their bills will be. They have to figure it out sometime—the earlier the better—so you can enjoy your retirement when they’re gone.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.