Baby boomers are infamous for meddling in their children's lives. But when it comes time for their kids to buy homes, get married and have their own kids, they are going to want less advice and more help in the form of cold, hard cash.
That's not so bad; most parents want to give their kids a leg up when they can. That can be the right thing to do, but there are ways it can be wrong, too.
It can be the wrong gesture if it comes with too many strings attached, or not enough... if it's simply cash that nouveau adults can blow on prolonging the fun-but-irresponsible years. It's also the wrong thing to do if it's not affordable: Gutting your own retirement plan to boost junior's lifestyle is no real favor to him. At least not in the long term.
Here's how to help your kids in ways that will count.
-- First, help yourself. The best gift parents can offer adult children is to be healthy, happy and financially secure role models. So, feed your retirement plan; take the long-awaited trip; sign up for classes if you need to or want to, before you start laying cash on your newly minted grown-up. They'll see what's do-able and rest secure in knowing they won't have to support you.
-- Buy their health insurance. Nobody should be without health insurance, but many new graduates are. They can't afford to buy policies while they job hunt. If you're trying to ease your kids off the family payroll, drop the gas card, the cell phone and the clothing allowance. But pay for their health insurance until they have a job that covers it, either through benefits or salary.
-- The retirement plan. A second good way to give money is by matching your child's IRA contribution. Many workforce newbies are too busy paying for work clothes and commuting to make complete contributions to their IRAs or Roth IRAs. But numerous studies have shown that you can never recover a late savings start. Folks who start in their 20s will be rich when they retire. So if they're working hard and struggling, and you want to help, make their IRA contributions for them, or match the money they're able to put in themselves.
-- The house. Parents who made a lot of money on their homes in the last few years look around and see that their kids probably can't afford to be their neighbors -- or buy houses at all without a little bit of help.
But it's important that that be structured properly, says Kevin Dorwin, a San Francisco financial planner who has seen many of his clients struggle with these issues in one of the nation's most expensive real estate markets.
Co-signing a loan might be the worst way to do this, he says, as it could result in your children getting a less favorable interest rate on the loan, and could limit your own ability to borrow money in the future.
It's better to give kids the down payment, or lend them money directly for the down payment or, if you can afford it, the home itself. If you do an intra-family loan, make sure it is structured properly and written down in a legal document. You can also take a piece of the home equity in exchange for your help, but don't do that without consulting an attorney who understands real estate. Depending on who pays the bills and who lives in the house, you could jeopardize some of the interest deductibility or the capital gains exclusion that would come into play when the house is sold.
-- The grandkids. Who doesn't want to shower those grandchildren with adorable clothes, the best quality toys and too many hugs? But the best grandchild gifts could be the more boring ones: Regular contributions to a Coverdell savings account, some shares of stock for an older child who might want to learn about investing, or payment for enrichment activities that the kid wants but the parents can't afford, like swimming or Spanish lessons.
The key to that: Let the child choose the activity, and avoid saying things like If I'm paying, you'll take tennis, not snowboarding.