Photo by Judy Olausen

This has been a financially tough year for my youngest sister, J.E. She was already tapping into her retirement savings when she found out in September that she needed to come up with $10,000 more for college tuition for her son.

Russell, who previously attended the University of North Carolina, had been accepted at George Washington University. But he was accepted as a provisional student. That’s subject to change next semester, assuming that he makes his grades. The catch is, until then, he is ineligible for student aid.

That’s hard on my sister, who leads a nonprofit and makes a modest income. But she’s not alone in putting her financial future at risk for an adult child. According to a recent survey, 68 percent of AARP members said they were supporting adult children. Of that group, 33 percent believed their assistance would be short-term, while 41 percent believed the support would last five years or longer.

“That really doesn’t say much for us, how we’re fostering independence,” said Peggy Cabaniss, a former chair of the National Association of Personal Financial Advisors. Cabaniss, president of HC Advisors of Lafayette, Calif., predicts the numbers will get even worse, given the grim economic forecasts.

But what are you going to do? Your kid loses her job or gets a divorce or has a serious medical condition. What parent wouldn’t want to help under those circumstances? Sometimes, temporary assistance is warranted, Cabaniss says. “Honestly, there are going to be people who are going to need some short-time help to get over the hump.”

Even so, parents need to protect their own financial futures. The best way to do that is by setting limits, she says.

“You really need to look at your own financial situation and put limits on it,” she said. First, you need to figure out how much you can afford. The general guideline for how much you can safely withdraw from retirement savings is about 4 to 5 percent a year. If you have enough to spare, you can probably help out. Next, you must understand exactly what the money is needed for. Then, Cabaniss says, you’re able to tell your child “I can help pay the rent or the mortgage for the next six months, but I can’t help beyond that.”

The decision to help also depends on what type of situation has caused the problem. If it’s an honestly lost job, that’s one thing, she says. But running up large credit card debt or buying a house that wasn’t affordable is another.

Cabaniss says she has been frustrated as a financial planner trying to prevent clients from jeopardizing their retirement incomes by spending, sometimes fruitlessly, to help their kids. In one case, a mother whose son had addiction problems paid time after time for rehab, with no long-term results, shrinking her investment account from $400,000 to $70,000. Tough love—no financial help—might have been a more appropriate response, says Cabaniss, who added that the client probably could have benefited from a program such as Al-Anon, which helps families dealing with addiction problems.

“The question is, what’s the purpose of the ongoing payment?” said Barry Glassman of Cassaday & Co. Inc., an independent financial planning firm in McLean, Va. For example, temporarily helping a new college graduate with living expenses so he or she can take a job in an expensive city might be an investment that allows the former student to achieve financial independence.

Using that kind of guidance, my sister’s investment in her son is probably a good one, since Russell will repay her in kind someday when she needs help.

One way of avoiding having to shell out to an adult child is to introduce your children early on to the idea of financial stewardship, Glassman says. “Having to earn even a small portion of your college fund money can build skill sets that can help in adulthood.”

Many of today’s retirees learned to be careful with money either from parents who were scarred by the Great Depression or through direct experience of their own in tough times. Many of their children “do spend beyond their means,” Cabaniss said. “They’ve never been turned down for a credit card. They buy things first, and then they pay for them.” In this new economic era, we may be relearning some of the lessons the Depression taught, she says.

So it’s hard to resist helping your kids, but at least take a step back and consider a few questions:

• Can you afford to? And, if so, what time or dollar limits should you set? If you can withdraw enough from your retirement savings to safely cover your living expenses for many years, you can probably afford to help out, Cabaniss says.

• If you can’t afford to contribute financially, what else can you do? Help your adult child think of other ways to come up with the money, Cabaniss suggests, such as taking out a home equity line of credit or selling some furniture or a car. Or consider a loan, but make sure it’s in writing, with interest rates and repayment schedules agreed to by both parties. “And stick to it. If you don’t, what you have given is one more bad lesson to your adult child,” Cabaniss said. You might consider making the loan through a bank or through one of the relatively new social lending sites that facilitate such agreements between family members or friends.

• Assuming you’ve set a limit on your financial assistance, what can you do to prepare a child for when it stops? Cabaniss suggests that you help your child develop a budget and make sure there’s an understanding that a $4,000 monthly paycheck doesn’t mean you have $4,000 to spend, especially if your child is new to work. Also, encourage savings in an emergency fund for the future, so your child doesn’t end up in the same fix again.

• Was it a situation that your child couldn’t control? Or are you paying to help him recover faster from financial carelessness? The most valuable help you could give toward becoming financially responsible may be not to help.

• Is it an investment that will pay off eventually in financial independence for your child? As they say: That’s priceless.

Martha M. Hamilton, formerly with the Washington Post, writes a regular column, Your Financial Future, for AARP Bulletin Today. If you have decided to delay retirement because of the current economic crisis and are willing to be quoted by name in a column, please e-mail Bulletinmoney@aarp.org and put Martha Hamilton in the subject line.