Should you give money to your adult children?
This week's reader question is an example of why I love the “ask the readers” feature here at Get Rich Slowly. I get to write about situations that otherwise would never occur to me!
Karen writes because she's having trouble with two of her kids:
I keep getting sucked into helping two of our children who can't seem to get it together. I don't want to see them on the street but they keep making dumb mistakes. What do you do when faced with a kid going to prison for lack of funds to pay fines? What about a different kid who is at risk of becoming homeless? This is tough to watch. (I really prefer dogs!) When does helping a family member financially become enabling? Or is it always enabling?
I find this situation fascinating because there's a disconnect between my general advice about giving money to adult children and my specific advice for Karen.
Why You Shouldn't Give Money to Adult Children
My standard advice is: Don't help your kids financially. Doing so harms both you and your kids. A decade of reading about money and hundreds of conversations with parents have brought me to this conclusion: Giving adult children financial support is, generally speaking, a bad idea.
Some people don't want to hear this, especially coming from me. (I have no children, so that disqualifies my advice in the eyes of some folks…as if it's impossible to recognize that a person has a broken bone if you've never had one yourself!)
But it's not just my opinion. In The Millionaire Next Door [my review], authors Thomas Stanley and William Danko devote two entire chapters — 69 pages! — to “economic outpatient care”, the substantial financial gifts some parents give their adult children (and grandchildren). Their research indicates that “the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more”.
The authors note that some forms of economic outpatient care, including subsidizing an education and funding business ventures, have a strong positive influence on the recipients. (They teach the children “how to fish”.) But most financial assistance simply creates a cycle of dependence:
What is the effect of cash gifts that are knowingly ear-marked for consumption and the propping up of a certain lifestyle? We find that the giving of such gifts is the single most significant factor that explains lack of productivity among the adult children of the affluent.
Stanley and Danko write about four specific ways in which cash gifts to adult children create problems:
- Giving encourages more consumption than saving and investing. In particular, Stanley and Danko warn 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.
- Receivers of gifts invest much less money than do non-receivers. The authors claim that gift receivers are “hyperconsumers”, only thinking 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.
I've known people who received financial assistance from their parents or grandparents. Most of these people have struggled with money in some way. They spent too much. They didn't feel the need to take a job. They put off making financial decisions because there was no need to do so. One time, for instance, I had an affluent friend who received a $25,000 gift from his grandparents. Rather than invest the money, he bought himself a new car. (There was nothing wrong with his old car.)
Obviously, not everyone who receives financial assistance from their parents will fall into this trap. But accepting such gifts often leads to trouble.
Note: There's another downside too. When parents give money to an adult child, they're compromising their own financial health. They're sacrificing saving for retirement (or other goals), which means they're hurting themselves as well as their kids! In my own life right now, I'm watching as two different sets of parents struggle to make ends meet because they're giving up money they need for themselves in order to help children who are perfectly capable of providing for themselves — except they were never encouraged to leave the nest.
What If Your Kid Will End Up Homeless?
Now, having said all this, what about Karen's situation? She has one child who is at risk of going to prison because she (or he) hasn't paid some fines. The other is at risk of ending up homeless. Should Karen simply sit back and allow her children to suffer?
I've had two weeks to think about this question. Some days, I feel as if there's no way Karen should let her kids go to jail or end up homeless. Other days, I feel like she should absolutely let them experience the consequences of their actions. Most of the time, however, I feel like this is a tough call and not something a stranger can decide.
So, I tried to practice some financial empathy. I ask myself what I would do if I were in Karen's shoes. What if I did have kids? What if they made some stupid-ass choices? (That's how Karen described her kids when she wrote to me, which cracks me up.)
Honestly, I don't know what I'd do. I have no clue what the right decision is in this situation.
What do you think? Is it always a parent's duty to protect their children, even when they're adults? If you ended up in jail because you did something dumb with money, would you expect your parents to bail you out? If you were at risk of becoming homeless, would it be your mom and dad's responsibility to help you? What's the right choice here? Is there one?