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I found an article that has been floating around the twittersphere today which says that 1 in 5 young adults between the ages of 18-34 receives some kind of a regular allowance from their parents or family members.¹ This is an important topic to discuss, because if you are included in this group—either the recipient or the giver—your financial future will be impacted and your goal of financial independence will be difficult to achieve.
Too many of our youth get into financial difficulty because they never learned proper principles of financial common sense at home. Teach your children while they are young. Teach them that they cannot have something merely because they want it. Teach them the principles of hard work, frugality, and saving.
-Joseph B. Wirthlin
In the book The Millionaire Next Door, the author Thomas S. Stanley describes this type of financial relationship between parents and their grown children as “economic outpatient care.” He says this type of relationship is detrimental to building wealth and one of the primary reasons people do not reach financial independence (You can read more about this in Stanley’s blog). Why is that the case? If you are a parent who regularly gives money to your growing children, not only are you depleting your own nest egg and financial resources, but you are hindering the financial progress and potential for your own children to learn, grown and develop their wealth building muscles.
I am not saying it is always bad for parents to give money to their children. It can be a major blessing for both the giver and receiver—if you have the wealth and ability to do so. However, it needs to be done in a way that actually helps the children as they progress in their own lives. For example, a 26 year-old college graduate who won’t get a job and lives in the basement will not benefit from a regular allowance from his parents. He will most likely spend more time in the basement and not get a job. In contrast, a young college graduate who just moved out, is starting a new job, is learning how to budget and save money, could benefit from a small financial gift from his parents. Do you see the difference? Financial gifts can be a blessing when they are given as a reward for productive behavior and done so randomly—not out of expectation or “bailing” your child out of a financial mess.
If your child is irresponsible, addicted to debt, unemployed, on drugs, or just likes to waste money on useless stuff, guess where he or she will spend additional money? Parents don’t want to enable bad financial behaviors. Money only makes us more of what we already are. If your child is a saver, giver, wise spender, employed, on a budget, etc, they will most likely continue these patterns if given a one-time financial gift.
If you insist on helping your children financially, do so randomly, on an every-once-in-a-while basis—and only if they have shown they know how to handle money and make wise choices. Otherwise, it will become a money pit and cost you significant wealth and the ability to enjoy a quality retirement with your spouse and family. It will also inhibit your children from learning financial responsibility and being able to reach financial independence in their future.
As parents, it is also wise to continually teach your children to budget, save, spend wisely, give (tithing and offerings), and become financially literate. This will cause future financial gifts your children would receive in their young adulthood to become a blessing rather than a detriment.
Develop the personal financial skills needed to win as parents and then teach your children to follow your example.