Have you become the bank of mom and dad? by Suze Orman

One in four homebuyers under the age of 30 said they got help with the down payment from their parents, according to a Redfin survey. Given how home prices in many parts of the country have accelerated a lot more than wages, I am not surprised. But I am concerned.

While I totally understand the parental desire to help your adult children financially, the only way this will work out is if the bank of mom and dad can truly afford to make this gift.

Two sides of true generosity

Remember this rule: True generosity is when a gift is generous for not just the recipient, but the giver as well.

In the here and now, giving an adult child money definitely feels like it is truly generous. You know you are making the impossible possible for your child, and that is a parent’s dream.

But my test for true generosity, be it for a down payment, paying down a child’s student loans, helping with grad school, or helping pay their rent, is whether it will leave you less secure in retirement.

Four questions to answer truthfully

I need every parent to stop before they make a financial gift and ask themselves:

• Am I on track to have enough to support myself in retirement?
• Will I have enough money to pay for at-home care or assisted living, if needed, in retirement? (Please do not dismiss this because you insist you will never need any help. That is not responsible planning.)
• Will I have my mortgage paid off before I reach age 62?
• Am I free of credit card debt?

You must be able to answer yes to every question before you get into the business of being the bank of mom and dad to your adult children.

If you can’t answer yes to every question, gifting, or even loaning money to an adult child is putting their future at great risk. Yes, I said their future. Sure, they may own a home thanks to you, or be able to live in a nicer rental right now, thanks to you. But when we fast forward 15, or 20 years down the line, they may also need to step in and provide some financial support for their elderly parent. I know that’s the last thing you want. But that’s a very real risk your family will face.

I hope before you make any sizable financial gifts to adult children today, you carefully think through if those dollars might be better used (at least for now) to build your retirement security. I realize it may not feel as great in the here and now, but it is legacy building. Building up your retirement savings and paying off your debts are moves that will make it more likely your kids won’t have to step in and help support you later on. You and I both know how incredibly grateful they will be if that’s how things play out.

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