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The Bank of Mom and Dad

Who picks up the check speaks volumes about your relationship with your adult children. Picture this: You’ve just polished off the dessert at a pricey restaurant with your son and daughter-in-law and their four children. You’re visiting in their town and they chose the restaurant. The kids went straight for the surf-and-turf. The server approaches with check in hand and hovers a split second, waiting for someone to say “I’ll take that.”  No one moves.

The impulse of nearly every parent is to end that awkward moment by reaching for the check. Maybe you’re better off than your adult children. Maybe you want to appear magnanimous. Maybe it’s reflexive, because paying the bills in your family is just something Mom and Dad do.

Here’s the real reason behind that impulse: You have not clearly cut the monetary ties between you and your adult child. You funded them through to adulthood; you bankrolled them in college; you co-signed that first car loan; you gave them the down payment for their first condo. But now that they are grown, if the subsidies continue, you’re sliding down a slippery slope without any idea of how to put on the brakes.

And you’re not doing your child any favors. Thomas Stanley and William Danko, authors of The Millionaire Next Door, call this support “Economic Outpatient Care.” After combing statistics on the topic, the authors warn that the more money you give your children, the less money they accumulate on their own. Your children aren’t necessarily lazy.  They are “high volume consumers of status products and services,” according to Stanley and Danko. In simple terms, your kids are using your money to buy cars, smart phones, and take-out food. Your money supports an unrealistically high lifestyle for them.  It’s easier for them to spend your money than theirs. Recipients of parental largess are more likely to be credit oriented. They invest less and save less. They consider your money to be theirs, just like when they were kids. And they count heavily on an inheritance when you’re gone. Stanley and Danko conclude:  “We find that the giving of such gifts is the single most significant factor that explains lack of productivity among the children of the affluent.”

Even it you’re not affluent, your “Economic Outpatient Care” could be significant enough to stunt your child’s financial competency and endanger your retirement nest egg. And you could set up resentment between siblings when one appears to be taking more advantage of Mom and Dad.

So what’s a caring parent to do?

Start with an honest conversation about your finances. My parents were very private about their income when I was a child. I had no idea how much they made or what it cost them to support our family. Then came the day when 4th-grade me bragged to the neighbors that my Dad, an Air Force officer and university professor, made the grand sum of $1,200 a year. I went home and assured Dad that his Daddy Warbucks reputation was safe in the neighborhood because I had set everyone straight about the extent of our wealth. He was humiliated and for the first time in my life set me straight about the bottom line.

While you may not want to open the books for your adult children, you can tell them that your needs come first. And if they don’t plan on supporting you in your old age, they should understand your motivation for cutting back on the family dole. They have no experience with that transition to the golden years, so don’t expect them to understand immediately. You will need to repeat the conversation.

When your children come to you for money, try to distinguish between financial crises that could have been prevented, and those that were no fault of the child. Even in a legitimate crisis (drug rehab, a medical bill, an eviction notice, a car repossession) take time to assess options with them and explore solutions that don’t foster dependency on you. Don’t argue or become defensive. Listen and commiserate while privately asking yourself if it is more important to save them from the situation or to teach them to work through the consequences of poor decisions.

If you do decide to give your child money, specify whether it is a loan or a gift. Remember, the kids are coming to you because a bank would turn them down.  The bank of Mom and Dad is more liberal, but that doesn’t mean you should give without terms – an interest rate, a repayment schedule, and an understanding about further loans or gifts.

When you’re attaching those strings, make sure they aren’t emotional ties. Are you giving because you can’t stand to see them suffer? Are you putting their happiness and your peace of mind above their need to become responsible adults? Are you using your money to keep them dependent on you, control their lives or hold them close?

Jane Adams, author of I’m Still Your Mother, says, “Our attitudes about giving our children money can be compromised by the degree of guilt we feel about ourselves as parents, by the attention, affection and stability we’ve provided them, by the difficulties they faced growing up, and by our own concerns about having treated them fairly or equally.”

If you’re already in a pattern of life support for your children, these changes will be painful. So start with something easy. Let them pick up the check.

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