2686: Should You Give Money to Your Adult Children? by J.D. Roth of Get Rich Slowly on Financial Outpatient

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[00:00:29] This is Optimal Finance Daily, episode 2686.

[00:00:33] Should you give money to your adult children?

[00:00:35] By JD Roth of Get Rich Slowly dot org.

[00:00:39] And I'm your host and personal finance enthusiast, Diania Merriam.

[00:00:43] Thanks so much for joining once again.

[00:00:45] I'm here narrating for you every single day from some of the best articles on the

[00:00:48] web when it comes to money and finance.

[00:00:51] So without further ado, let's get right to today's post and continue optimizing

[00:00:56] your life.

[00:01:01] Should you give money to your adult children?

[00:01:03] By JD Roth of Get Rich Slowly dot org.

[00:01:08] This week's reader question is an example of why I love the Ask the Readers feature

[00:01:12] here at Get Rich Slowly.

[00:01:15] I get to write about situations that otherwise would never occur to me.

[00:01:19] Karen writes because she's having trouble with two of her kids.

[00:01:23] She asks, quote, I keep getting sucked into helping two of our children who can't seem

[00:01:28] to get it together.

[00:01:29] I don't want to see them on the street, but they keep making dumb mistakes.

[00:01:34] What do you do when faced with a kid going to prison for lack of funds to pay fines?

[00:01:39] What about a different kid who's at risk of becoming homeless?

[00:01:42] This is tough to watch.

[00:01:44] I really prefer dogs.

[00:01:46] When does helping a family member financially become enabling?

[00:01:50] Or is it always enabling?

[00:01:53] End quote.

[00:01:54] I find this situation fascinating because there's a disconnect between my general advice about

[00:01:59] giving money to adult children and my specific advice for Karen.

[00:02:04] Why you shouldn't give money to adult children?

[00:02:07] My standard advice is don't help your kids financially.

[00:02:11] Doing so harms both you and your kids.

[00:02:14] A decade of reading about money and hundreds of conversations with parents have brought

[00:02:18] me to this conclusion.

[00:02:20] Giving adult children financial support is, generally speaking, a bad idea.

[00:02:25] Some people don't want to hear this, especially coming from me.

[00:02:28] I have no children, so that disqualifies my advice in the eyes of some folks, as if

[00:02:33] it's impossible to recognize that a person has a broken bone if you've never had one

[00:02:37] yourself.

[00:02:39] But it's not just my opinion.

[00:02:41] In The Millionaire Next Door, authors Thomas Stanley and William Danko devote two entire

[00:02:46] chapters, 69 pages, to economic outpatient care, the substantial financial gifts some

[00:02:53] parents give their adult children and grandchildren.

[00:02:57] Their research indicates that the more dollars adult children receive, the fewer they accumulate,

[00:03:02] while those who are given fewer dollars accumulate more.

[00:03:06] The authors note that some forms of economic outpatient care, including subsidizing an

[00:03:11] education and funding business ventures, have a strong positive influence on the recipients.

[00:03:17] They teach the children how to fish.

[00:03:19] But most financial assistance simply creates a cycle of dependence.

[00:03:24] They ask, quote, what is the effect of cash gifts that are knowingly earmarked for consumption

[00:03:30] and the propping up of a certain lifestyle?

[00:03:33] We find that the giving of such gifts is the single most significant factor that

[00:03:38] explains lack of productivity among the adult children of the affluent.

[00:03:43] End quote.

[00:03:44] Stanley and Danko write about four specific ways in which cash gifts to adult children

[00:03:49] create problems.

[00:03:52] Number one, giving encourages more consumption than saving and investing.

[00:03:57] In particular, Stanley and Danko warn about gifts of house down payments.

[00:04:02] Number two, gift receivers in general never fully distinguish between their wealth

[00:04:07] and the wealth of their gift-giving parents.

[00:04:10] They believe they're entitled to the things their parents have and feel resentment

[00:04:14] if the wealth is given to somebody else.

[00:04:17] Number three, gift receivers are significantly more dependent on credit than our non-receivers.

[00:04:22] They use credit in order to sustain their lifestyle of consumption between gifts.

[00:04:28] And number four, receivers of gifts invest much less money than do non-receivers.

[00:04:34] The authors claim that gift receivers are hyper consumers, only thinking of now.

[00:04:39] They've come to expect that their financial needs will be met by their parents

[00:04:43] and so they don't plan for the future.

[00:04:46] I've known people who received financial assistance from their parents or grandparents.

[00:04:51] Most of these people have struggled with money in some way.

[00:04:54] They spent too much.

[00:04:55] They didn't feel the need to take a job.

[00:04:57] They put off making financial decisions because there was no need to do so.

[00:05:02] One time, for instance, I had an affluent friend who received a $25,000 gift from his grandparents.

[00:05:08] Rather than invest the money, he bought himself a new car.

[00:05:12] There was nothing wrong with his old car.

[00:05:14] Obviously not everyone who receives financial assistance from their parents will fall into this trap.

[00:05:19] But accepting such gifts often leads to trouble.

[00:05:23] Note, there's another downside too.

[00:05:26] When parents give money to an adult child, they're compromising their own financial health.

[00:05:31] They're sacrificing saving for retirement or other goals,

[00:05:34] which means they're hurting themselves as well as their kids.

[00:05:37] In my own life right now, I'm watching as two different sets of parents struggle to make ends meet

[00:05:43] because they're giving up money they need for themselves

[00:05:46] in order to help their children who are perfectly capable of providing for themselves,

[00:05:50] except they were never encouraged to leave the nest.

[00:05:54] What if your kid will end up homeless?

[00:05:57] Now, having said all this, what about Karen's situation?

[00:06:01] She has one child who's at risk of going to prison because she or he hasn't paid some fines.

[00:06:07] The other is at risk of ending up homeless.

[00:06:10] Should Karen simply sit back and allow her children to suffer?

[00:06:14] I've had two weeks to think about this question.

[00:06:16] Some days I feel as if there's no way Karen should let her kids go to jail or end up homeless.

[00:06:21] Other days I feel like she should absolutely let them experience the consequences of their actions.

[00:06:27] Most of the time, however, I feel like this is a tough call and not something a stranger can decide.

[00:06:33] So I tried to practice some financial empathy.

[00:06:36] I asked myself, what would I do if I were in Karen's shoes?

[00:06:39] What if I did have kids?

[00:06:41] What if they made some stupid choices?

[00:06:44] That's how Karen describes her kids when she wrote to me, which cracks me up.

[00:06:48] Honestly, I don't know what I'd do.

[00:06:50] I have no clue what the right decision is in this situation.

[00:06:53] What do you think?

[00:06:55] Is it always a parent's duty to protect their children even when they're adults?

[00:06:59] If you ended up in jail because you did something dumb with money, would you expect your parents to bail you out?

[00:07:04] If you were at risk of becoming homeless, would it be your mom and dad's responsibility to help you?

[00:07:10] What's the right choice here?

[00:07:11] Is there one?

[00:07:16] You just listened to the post titled,

[00:07:18] Should You Give Money to Your Adult Children?

[00:07:20] by JD Roth of Get Rich Slowly.org

[00:07:23] and I'll be right back with my commentary.

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[00:08:37] As with many questions when it comes to money, the answer is often,

[00:08:41] it depends. There are very few hard, fast rules.

[00:08:45] The only ones that immediately come to mind are spend less than you earn,

[00:08:49] don't buy whole life insurance and don't participate in an MLM.

[00:08:53] Everything else is up for debate in my book, including borrowing from or lending money to loved ones.

[00:08:59] If I were ever to loan money to friends or family,

[00:09:02] it would be because I didn't see another way out for them.

[00:09:05] And it wouldn't be my first solution.

[00:09:08] Before I handed someone money, I would first spend my time and energy

[00:09:11] trying to help them find other resources

[00:09:14] and or encourage them to find other creative solutions.

[00:09:18] If it became clear that there weren't any better options,

[00:09:21] I would set up an agreement and expectations on payment from them.

[00:09:25] But I would also quietly consider it a gift and never follow up on that money.

[00:09:30] I would never loan money to loved ones that I really needed back

[00:09:34] because the odds are not in my favor.

[00:09:36] And if they pay it back, great.

[00:09:38] But if not, I can easily let it go

[00:09:40] because I know relationships are more important than money.

[00:09:44] But that'll do it for this episode.

[00:09:46] Have a happy rest of your day

[00:09:47] and I'll be back with you again tomorrow

[00:09:49] where your optimal life awaits.