All parents want their children to grow up to be successful, happy adults who experience prosperity—a safe home, nice vacations and new things from time to time. It’s simply how we’re wired as humans.
As a parent, you may even feel it’s in your job description to help your progeny achieve this. From the moment your baby cries out for the first time, you’re driven to offer assistance for every possible challenge that springs up. Yet sometimes this parental “assistance” backfires and achieves the opposite effect.
After a decade of reading about money and partaking in hundreds of conversations with parents, I’ve come to the conclusion that giving adult children money is generally a bad idea.
Gift Receivers Accumulate Less Money
At first glance, this may seem like it goes against your innate need to take care of your children. But here’s what I’ve discovered after observing and studying parents of successful children in my practice: parents who support their kids financially often create a cycle of dependence that is difficult to break. In some cases, it only gets worse.
And I’m not the only one who has seen how damaging it can be to provide financial support to adult children. Research conducted over the years has proven it.
Thomas Stanley, an influential researcher and author of “The Millionaire Next Door,” devoted two chapters and 69 pages to this subject in his book. Calling it “economic outpatient care,” he concluded that “the more money adult children receive, the fewer dollars they accumulate. While those given fewer dollars accumulate more.”
Stanley went on to explain the rationale behind this finding:
· Giving encourages more consumption than saving and investing. In particular, Stanley warns about gifts of house down payments.
· Gift receivers in general never fully distinguish between their wealth and the wealth of their gift-giving parents. They believe they are entitled to the things their parents have, and feel resentment if the wealth is given to somebody else.
· Gift receivers are significantly more dependent on credit than are non-receivers. They use credit in order to sustain their lifestyle of consumption between gifts.
· Gift receivers invest much less money than do non-receivers. Stanley claims that gift receivers are “hyperconsumers” who only think of now. They have come to expect that their financial needs will be met by their parents, so they don't plan for the future.
Is Giving Money to Your Adult Kids Ever Okay?
While Stanley affirms that money for adult kids is bad news, there are two forms of “economic outpatient care” that can pay dividends: subsidizing education and funding a business venture within certain limits.
Paying for education continues to give kids a strong career foundation. Studies show a strong correlation between a college degree and future earnings, unless the degree pursued has limited career prospects.
According to a Bureau of Labor Statistics study, the “median weekly earnings in 2017 for those with the highest levels of educational attainment—doctoral and professional degrees—were more than triple those with the lowest level, less than a high school diploma. And workers with at least a bachelor’s degree earned more than the $907 median weekly earnings for all workers.”1
Raising Kids Who Support Themselves
So how do you ensure that their children grow up to be self-sufficient? The answer I get from parents who have done well in this area is simple: they communicate a reasonable expectation for their kids, usually by the time their children reach high school age, and stick to it.
A couple I spoke to recently with several self-sufficient and successful children and grandchildren offered this insight: “We told our kids we would help them through four years of college and then they were on their own.”
When I encounter parents struggling with being the Bank of Mom, and I ask them what their son’s or daughter’s expectations are, they often don’t have an answer. This begs the question: If you as the parent haven’t set an expectation, then how do you expect your kids to set a goal?
Getting Your Adult Kids to Move Out
If you’ve already set the precedent of giving money, whether it be through checks or paying for cell phone and car insurance bills, it’s not too late to change your approach.
A dear client of mine shared in a meeting recently that her adult son was finally moving out at the age of 24. I asked her how she did it. She explained that her strategy involved setting “deadlines” and putting it in writing.
She sat down and worked out a plan, giving her son about three months’ notice. After three months, she began charging him $300 rent per month. After six months, she raised it to $600. She also gave him a list of chores and household responsibilities.
During this process, she reminded her son that she loved him very much and shared her belief that it wasn’t good for him to be under the “tether of his mother’s apron strings.” (I had never heard that phrase before. She’s from the East Coast). She further expressed that she was doing what was best for him since a young man needs his independence.
As she shared her story with me, she emphasized that she treated it like a business agreement. Interestingly, within a few months her son had gone on to gain a better job, which he now loves, and he started dating a girl that my client really likes. Also, after one year of paying mom rent, he is now moving out.
Let’s face it. Being a parent in this day and age is hard. We have so many pressures put upon us, and it is easy to try to fix our shortcomings by giving our kids too much.
The good news is that the best way to deal with adult kids financially is pretty straightforward: avoid giving them money beyond education by setting an expectation and sticking to it. Not only will you set your kids up for true long-term financial security, but you might even take a step in the direction of improving your own.
1. Torpey, Elka. (April 2018). “Measuring the Value of Education.” U.S. Department of Labor: Bureau of Labor Statistics. Retrieved from https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm.