Bank of Mom and Dad Causes More Harm Than Good

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"How can I get some money? Short of earning it, I mean."

-"Calvin" in Calvin and Hobbes by Bill Watterson

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I'm helping my team set up for a family meeting with the firm's largest client. This client is the first generation to have significant wealth. Their children are in their 50s, but none of them are financially independent. They struggle to find meaning in their life since they have no need to find a career. They don't keep jobs for very long. They rely on credit cards to keep up their lifestyle. When they can't pay back the credit card company, their mom and dad pay their bills.

Mom and dad tell them, numerous times, that the support will be ending soon because they aren't learning how to be independent. With that warning in mind, the kids do it again. Once again, mom and dad bail them out. The kids won't be able to survive without their life support.

I don't work with that team or client anymore, but the lessons are still there.

Statistics Speak Louder Than Words

The example above was about children in their 50s, but there is a growing trend in parents of millennials doing the same thing. A recent study has shown that this is a growing concern. Here are some of the finding:

• 7 out of 10 are getting financial help from their parents

• More than half of those getting help are in their 30s

• 6 out of 10 wouldn't be able to support their current lifestyle without their parent's help

• Groceries and cell phone bills are among the most common items paid for

I've spoken to people who tell me they don't want to leave their kids with an inheritance and would rather give their money away now so they can see them enjoy it. On the surface, that sounds fair. There is one hitch, though - these parents haven't thought about the downsides of supporting adult children.

Financial Enabling

With any kind of self-defeating problem, be it alcoholism, gambling addiction, workaholism, or financial dependency, for every person with the problem there is at least one enabler. Enablers not only ignore the problem's impact, but often times fuel the problem. When this happens with money it's called financial enabling.

Financial enabling is effectively supporting people financial who shouldn't need to rely on you for support. It's most common in parent-child relationships, but can happen with between two siblings, other relatives, or even friends. Often, this financial help comes at the expense of the enabler's financial well-being.

In the short run, a financial enabler is helping, sort of. In the long run, though, and especially if it's continual, the enabler does more harm than good.

Money is the number one source of stress in people's lives, above work, health, and kids. People with money disorders typically have faulty beliefs about money and cannot change their behavior even though they know they should.

Side Effects and Unintended Consequences

Some people might say, "so what?" It's the financial enablers' money and they should be able to do whatever they want with it. While I agree that people should be able to make whatever informed decisions they want to with their money, most financial enabler's aren't making informed decisions. There are consequences to be aware of.

First, some people give money to financial dependent children even at the expense of their own future. To said that another way, many parents finance their adult children's lifestyles even if they can't afford to do so.

Every time you say "yes" to someone who asks for money reinforces that "strategy" of getting money. The reinforcement is even stronger if it involves a dramatic scene, threatening in some way, or begging.

If your child never has to work for money, or has a very reliable safety net available, it's going to be difficult for that child to manage a career. There's a strong chance that they will quit any job or career the first time it gets hard - because they don't need to work. They don't have to come up with a creative solution to their problem. They don't have to think about reducing their lifestyle. Why would they?

The problems can compound with a couple, one of whom doesn't want to financially support the child and the other does. This often leads to financial infidelity, or keeping money secrets from loved ones. This means that, in addition to contributing to a financially dependent child, they put their own relationship at risk.

It's Hard to Say "No"

It is understandable why parents continue to financially support their adult children. We don't like saying, "no." Nobody likes to see someone else suffer, even if the "suffering" is made up. Since every "yes" reinforces whatever behavior brought about the financial help, those behaviors and strategies are used again.

The fear of getting cut off is real, and the strategies that financially dependent folks will utilize can be very creative.

If a financial enabler has ever brought up ending support, but then gave support anyway, this can result in something I call a game of financial chicken - where both parties keep going until one finally gives in.

Financial Chicken

It's common, when a "no" is encountered, to try a new strategy, and a new one, until something works. This sometimes results in financial chicken, or a stand off. Financial dependents will use threats, like the threat of moving away so their parents won't get to see their grandchildren. They'll use guilt techniques and lay on stories about what's going to happen to them if they don't get support. All of these make it very difficult to deny support.

Alternatives

So what can you do? The first thing is to understand that support can actually be harmful in the long run. Even if, like the clients in the story above, the children stand to inherit a lot of money, you have to think about how long that money is likely to last in the hands of heirs who aren't prepared to handle money, especially a lot of money. Then, it's time to think of alternatives.

One alternative is to offer financial support, but in a way that is more likely to create a positive long term outcome. For example, you could pay for a financial coach or planner, offer to pay for psychotherapy, or help find a career counselor.

Another alternative is to simply end the support. This is akin to taking off the training wheels. Financial enablers have seen how creative and focused their financially dependent children can be when it comes to financial handouts. Cutting the support can help redirect that creative energy to getting money by earning it. This may require setting an end date in the future (so as to not cut it off without warning), and rehearsing a script.

Don't rob your retirement and ruin your children. Establish a plan to help your children grow and become financially independent.

Read Next:

Understanding Money Scripts

Couples and Money

Money Conversations

References:

Journal of Financial Planning: When Helping Hurts: 5 recommendations for planners with financial-enabling clients

Brad Klontz, Ted Klontz: Mind Over Money

Kare11: Digital Dive: Study says millennials ask parents for money

Sharon Wegscheider-Cruse: Another Chance