Do you subsidize your adult children? You need to stop doing that right now. In my 20 years as a financial advisor, I saw too many retirees financially supporting their adult children and reducing their own standard of living. This makes no sense. Retirees generally are on a fixed income while their younger adult children have opportunities to generate income on their own. When I suggest the secession of subsidy to most retirees, they seem to have guilt at the thought of doing so.
The retiree first defends their actions by explaining that the subsidy is temporary. They say that the temporarily weak economy, a one-time home foreclosure, temporary unemployment, need for a roof replacement, need for extensive dental work, and unforeseen medical condition or other seemingly one-time events create the need for the subsidy. However, if you look at the list in the previous sentence, you will notice that these things come along all the time. So the retiree sees these events as an isolated incident and in fact one isolated incident follows the next making for a permanent subsidy situation.
You are Not Helping
In the long run, neither party wins from this financial situation. As stated, the retiree must reduce his standard of living. As for the adult child, he or she becomes dependent on the financial lifeline from mommy and daddy. Each month that this continues, the child becomes less and less likely to stand on his own. The parent creates a permanent dependency and erodes the child's ability to achieve financial independence.
In the book, The Millionaire Next Door by Ph.D.s Thomas Stanley and William Danko, the authors strictly prohibit aid of any sort to adult children. They argue that such aid erodes the parents wealth and virtually ensures that the child will never create his own wealth. You may have heard Warren Buffet speak on the same subject.
Says Buffet: ''My kids are going to carve out their own place in this world, and they know I'm for them whatever they want to do.'' But he believes that setting up his heirs with ''a lifetime supply of food stamps just because they came out of the right womb'' can be ''harmful'' for them and is ''an antisocial act.'' To him the perfect amount to leave children is ''enough money so that they would feel they could do anything, but not so much that they could do nothing.''
There are plenty of places that adult children can get money when they need it. They could get a job or work a second job. They could start their own business (I have started several for under $10,000). They could go to a bank for a loan. They could pursue peer-to-peer lending which was not so available for the last generation. They could asked her friends for money. They could become innovative. They could reduce their own standard of living by selling the BMW and driving a Chevy.
Notice that if some of the above options are not possible for your adult child, it is likely reflective of the damage you have already done. If your kid cannot get a bank loan because they have a low credit score because they got ill and missed paying bills because they did not have health insurance because..... You see that one "screw up" leads to another and you have likely been helping your kid be a screw-up. he will never get it together when mommy and daddy are always there for a bailout.
When the parents financially subsidizes an adult child, all of the potential learning to deal with one's own trials and tribulations is destroyed.
 Fortune Magazine, Should you leave it all to the children? November 21, 2012