“No” is a short and powerful word. It’s easy to spell, easy to pronounce, and one of the first words a toddler learns to say. But for parents and grandparents, “no” can be one of the most difficult words to utter—especially to adult children or grandchildren who want your help to solve their financial problems.
Last year the Wall Street Journal published the results of a study on life priorities in which 50,000 Americans participated.1 When it came to family, the top priorities listed were to “educate my family on ways to be more financially independent” and to “cut back on financial support to post-college children.”
Parents who give money to their adult children after college spent an average of $6,800 annually according to the study. The problem, noted the Wall Street Journal, is that they are giving this money away at a crucial time when they need to be facing their own retirement head on.
Let’s assume Nancy is age 50 and has a son who just finished college. If Nancy stopped giving her son $6,800 each year, that would give her an additional $102,000 for retirement by the time she is 65. And if she invested that same money (assuming a 6% return) she would have $158,277 in her nest egg over that same15 year period.
The study also uncovered American’s greatest fear about retirement—being a burden on family members as we age. Giving money to adult children may seem like a huge help to them now. But when you look at the big picture, the greatest gift we can give to our children is to have the financial assets to pay for our housing and care and medical expenses—even if we live to 100! Parents who sacrifice their financial security to bail out loved ones now risk running out of money. They may require someone else to take them in and care for them and pay their expenses in their later years.
We’ll be the bad guys!
The good news is that we are going to give you an easy way out if a family member asks you for money. That’s right! You don’t have to be the bad guy. We are offering this service free of charge. Tell your child (or grandchild) that you consult with your financial advisor prior to making financial decisions. Let them know that your financial advisor has asked that your child or grandchild contact us by phone or in person so that we can discuss their financial request.
Tell them this is nothing to be scared of. Just like a doctor, we can’t make a diagnosis without gathering a few facts so that we can better understand their situation. Our purpose is two-fold. One, we genuinely want to help. And second, we want to protect clients who are giving away their own financial security because they can’t say “no” to family members.
Now lest you think we are scrooges when it comes to family members, we are not. Family wealth involves lots of dynamics, including what you can afford, how you can best help, and what is the desired outcome. For several decades, we have preached the following financial principles:
Principle #1: Love is not tied to money.
Adult children may sometimes manipulate their parents’ emotions by associating money with love (i.e. the more you give me the more you love me). Worse, some children really believe it. Never confuse money with love and don’t allow your family to do so either.
If they try this trick, reverse the tables. Tell them you have raised them and supported them all through their growing years. Ask if you should measure your child’s love for you by how much they are willing to support you in your later years.
Principle #2: Empower, don’t enable.
This is the concept of “Give a child a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime.” Too often well-meaning parents enable their adult children to become dependent for financial and emotional support by always providing advice and money when things go wrong. Sometimes it is best to just be a listening ear and let them figure out what they need to do next.
Principle #3: You are responsible for your own financial security.
This is directed at both parents and children. Parents must give first priority to their own financial security. Your retirement funds represent a lifetime of sacrifice and saving and investing. These funds must be off-limits to your children. If you use your own resources to bail out your adult children, we can almost guarantee that this won’t solve their problems—it will only prolong them.
Experience has shown us that the cause of the problem (excessive spending, inability to keep a job, laziness, etc.) doesn’t change until a person is sufficiently motivated to change themselves. If you solve their problem for them, it will likely be repeated until they solve the problem through their own efforts.
We have been involved in an organization of over 2,000 young single adults ages 18 to 31. Many of these men and women have become educated and are self-sufficient, or are on the path to becoming such. But it has surprised us how some young adults do not even recognize the need to seek financial independence. They’re piling on student debt while studying self-awareness with no path for employment.
Principle #4: Be an example of generosity.
We know this sounds counter-intuitive after we have talked about safeguarding your money! But one of the best cures for selfishness in children is to get them involved in helping others who are less fortunate.
Let your children and grandchildren participate with you in doing charitable work. Adopt a family during the holidays together. Volunteer at a shelter or homeless kitchen together. Sometimes our family members have made us aware of someone who could use assistance during a difficult situation and we have been happy to help out. We also like to “treat” our own family members by paying for airfare for family reunions or surprising them with something when it is not expected.
The bottom line is that when dealing with adult children and grandchildren, your job is to reinforce fiscal and family responsibility. Let your family members learn from their mistakes and let them find their own solution. You can give them encouragement and support and help them develop self-respect and dignity. If that doesn’t work—have them give us a call!