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Did you know that overindulging your child could be hazardous to your financial health, both in the short and long term? In the best-case scenario, overindulging your child ends up being a frustrating experience that nickels-and-dimes you to death. In the worst-case scenario, it can bankrupt you.
Lessons You Hadn’t Intended to Teach
Have you fallen into a pattern in which every time you take your young child on a shopping trip he has to have something? It doesn’t matter if you are going grocery shopping, shoe shopping, clothes shopping, or taking a trip to the garden center—he has to have something! Of course, retailers don’t make it easy for parents. They put all of that fun stuff right at 5-year-old eye level as you check out. But that’s their plan.
If you don’t buy your child something, he turns on a WWE SmackDown-scale tantrum right there in front of God and everyone. So, you buy him off. You give him what he wants and slink out of the store in embarrassment. This recurring event is extremely frustrating, and teaches your child a lesson you didn’t intend to teach: “The world is my oyster and mom and dad are my ATM.” Could a pattern like this, which starts in early childhood, become your financial ruin? The answer is "yes" if the pattern is long-term and becomes ingrained.
General $$ Education 101
Fast-forward 13 years. Your son is now a freshman in college and you have just dropped him off at school. You cosigned a credit card with a $5,000 spending limit for “emergencies only.” In no time at all, he maxes the credit card limit—but there was no emergency. Now you are on the hook for his tuition, board and room, and a credit card bill at 21 percent interest. Think this couldn’t happen? Look at the facts reported by the Experian College Graduate Survey Report. (These figures do not include bills students owe for tuition, board, and room.)
- The average soon-to-be college graduate has 1.35 credit cards.
- 33 percent have made a late payment and 31 percent have maxed out.
- Average student credit card balance in 2016 was $2,573.
Graduation Day Has Arrived
The happy day has finally come. The good news is he is a graduate of an outstanding university. The bad news is he has accumulated a huge debt. He not only owes money on his credit cards but also owes on college loans. According to the 2016 Experian College Graduate Survey Report, among college graduates:
- 69 percent owe an average of $22,813 on student loans.
- 30 percent owe an average of $2,573 on credit card loans.
- 23 percent owe $10,379 on auto loans.
- 12 percent owe $36,379 on home loans.
- 6 percent owe $6,771 on other types of debt.
Fast Forward Another 15 Years
Your son has graduated from college, is married, and is a young professional with an excellent job. Together he and his wife earn six figures, but they spend every nickel they make. They would like to buy a nice home but don’t have the down payment, so you float them a loan with the understanding that they will pay you back with interest, but it never happens. Kelli Grant wrote a story for CNBC titled "Cutting the Cord on Support for Adult Children" in which she cited numerous cases just like this. These children probably rationalize their behavior by saying they were collecting their inheritance early.
Collecting Inheritance Early
It appears that many adult children are collecting their inheritance early. According to a new study, The Financial Journey of Modern Parenting: Joy, Complexity, and Sacrifice, parents are spending $500 billion dollars a year to support adult children. Of the 2,500 parents surveyed, "72 percent of the parents said they’ve put their children’s interests ahead of their own need to save for retirement. And 63 percent report having sacrificed their financial security for the sake of their children...In fact, the study maintains, 79 percent of parents are providing financial support to their adult children. And not just a little; the average was $7,000 a year."
What Are Parents Paying For?
Parents are spending $500 billion dollars a year to support adult children ages 18-34. What does this money go for?
- 60 percent food and groceries
- 54 percent cell phone
- 47 percent car expenses
- 44 percent school
- 44 percent vacations
- 36 percent rent/mortgage
- 27 percent student loans
According to Dychtwald, author of the Merrill Lynch study, "Parents realized they didn’t know how to execute boundaries or when to say ‘enough is enough.’ This is new, uncharted territory for them.”
Old patterns die hard, but they can change. Now is the time to start teaching your child that “the world may be your oyster, but mom and dad are not your ATM.”
Tips for Avoiding Overindulgence
- Set limits and enforce them.
- Talk about money management with your children. I suggest Nathan Dungan’s Share Save Spend techniques as a guide.
- Teach the difference between wants and needs.
- Role model good money management.
- Set and enforce reasonable boundaries.
- Have a five-minute money meeting with your adult child.
- Learn to say no.
Do all things with love, grace, and gratitude.
© 2019 David J. Bredehoft
