Borrowing money
Forced to borrow money from your parents? Image Credit: Stock image

The impulse to help an adult child who has been dealt a financial blow by the pandemic is strong and understandable.

Financial fallout from the pandemic is hitting millennials hard - and many will soon turn to their parents for help, if they haven't already.

Before parents ride to the rescue, financial planners urge them to map out a strategy that doesn't just plug a short-term need but also makes sense in the long run.

Often the heartstrings will get pulled - 'I really have to help them!' - but it can be detrimental to the parent

- Jeffrey L. Corliss, certified financial planner

"Often the heartstrings will get pulled - 'I really have to help them!' - but it can be detrimental to the parent,'' says certified financial planner Jeffrey L. Corliss.

(Of course, financial aid can flow the other way, as many millennials help support their parents. I'm addressing parents here, but most of the advice applies to kids helping their folks as well.)

Millennials losing jobs, income

Even before the pandemic, millennials had lower median incomes, far more debt and a much smaller slice of the nation's wealth than boomers had at the same age.

Millennials - usually defined as those ages 24 to 39 - are more likely than older generations to have lost jobs or household income because of the pandemic, various surveys show.

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Millennials - usually defined as those ages 24 to 39 - are more likely than older generations to have lost jobs

"I've already seen clients coming in, worried about their kids," says CFP Deborah Badillo. "They're going to lose the house! What can I do to help them?"

Have them explore alternatives

Encourage your kids to take full advantage of available financial help before extending yours, Badillo says.

They may not know, for example, that benefits have been dramatically expanded because of the pandemic. There are many more options for people struggling to pay debt.

Encourage your kids to take full advantage of available financial help before extending yours, Badillo says.

- Deborah Badillo, certified financial planner

Raiding retirement funds isn't ideal, of course, but your kids have many more years to replenish their retirement savings than you do.

Assess your own situation

While your kids are calling their lenders, take a moment to assess your own finances. Where will the cash for your kids come from? It's one thing to give away money you've been saving for a vacation, since you're unlikely to travel soon anyway. It's quite another to undermine your own ability to retire or handle a layoff or other setback.

Some parents make a conscious decision to operate with a smaller cushion, or to delay their retirements, to help their children, says CFP Lazetta Rainey Braxton. Just keep in mind that you may not get to decide when you retire.

Many workers retire earlier than expected, often because of a health problem or job loss. Helping your children now could mean you have to lean on them later, Braxton says. If you're not sure how this financial aid will impact your future finances, a consultation with a fee-only financial advisor could bring you some clarity.

Some parents make a conscious decision to operate with a smaller cushion, or to delay their retirements, to help their children

- Lazetta Rainey Braxton, certified financial planner
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Financial planning Image Credit: Supplied

Set some boundaries

Financial planners typically recommend deciding how much to give, and then setting clear boundaries about when the financial help will end. That's tricky now, of course, because no one knows how long the current economic crisis will last.

But parents can still set expectations in other ways, financial planners say. If the child didn't have an emergency fund, for example, parents can discuss the importance of saving money out of every future paycheck, so the child won't have to rely on family help again, Braxton says.

"Some parents will just put on a Band-Aid and give them money, but they really haven't helped in terms of their financial capacity," Braxton says.

If an adult child is moving back home, Corliss suggests a written contract outlining chores and responsibilities, such as how soon they'll be expected to move out after finding a job.

Some parents will just put on a Band-Aid and give them money, but they really haven't helped in terms of their financial capacity

- Braxton

A similar end date can be set for any cash the parents hand out. Corliss says the message should be clear: "We expect you to get on your feet as soon as you can."

- This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of "Your Credit Score." Email: lweston@nerdwallet.com. Twitter: @lizweston.