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Optimal Living Daily. This

1:10

is Optimal Finance Daily, episode 2686. Should

1:14

you give money to your adult children? By

1:17

J.D. Roth of getrichslowly.org.

1:20

And I'm your host and personal

1:22

finance enthusiast, Diana Merriam. Thanks

1:24

so much for joining once again. I'm

1:26

here narrating for you every single day from some

1:28

of the best articles on the web when it

1:30

comes to money and finance. So

1:33

without further ado, let's get right to

1:35

today's post and continue optimizing your life.

1:42

Could you give money to your adult children? By

1:45

J.D. Roth of getrichslowly.org. This

1:49

week's reader question is an example of why

1:51

I love the Ask the Readers feature here

1:54

at Get Rich Slowly. I get

1:56

to write about situations that otherwise would never

1:59

occur to me. Karen

2:01

writes because she's having trouble with two of

2:03

her kids. She asks, quote,

2:07

I keep getting sucked into helping two of our children

2:09

who can't seem to get it together. I

2:11

don't want to see them on the street, but they

2:13

keep making dumb mistakes. What do

2:16

you do when faced with a kid going to

2:18

prison for lack of funds to pay fines? What

2:21

about a different kid who's at risk of becoming

2:23

homeless? This is tough to watch.

2:26

I really prefer dogs. When

2:28

does helping a family member financially

2:30

become enabling or is it

2:32

always enabling? I

2:36

find this situation fascinating because there's

2:38

a disconnect between my general advice

2:40

about giving money to adult children

2:42

and my specific advice for Karen.

2:45

Why you shouldn't give money to adult children.

2:48

My standard advice is don't

2:51

help your kids financially. Doing

2:53

so harms both you and your kids. A

2:56

decade of reading about money and hundreds of

2:58

conversations with parents have brought me to this

3:00

conclusion. Giving adult children

3:03

financial support is, generally speaking, a

3:05

bad idea. Some

3:07

people don't want to hear this, especially coming from me.

3:10

I have no children, so that disqualifies my

3:12

advice in the eyes of some folks, as

3:14

if it's impossible to recognize that a person

3:16

has a broken bone if you've never had

3:18

one yourself. But it's

3:20

not just my opinion. In

3:23

The Millionaire Next Door, authors

3:25

Thomas Stanley and William Danko

3:27

devote two entire chapters, 69

3:30

pages, to economic outpatient care,

3:32

the substantial financial gifts some

3:35

parents give their adult children and grandchildren.

3:38

Their research indicates that the more

3:40

dollars adult children receive, the fewer

3:42

they accumulate, while those who are

3:45

given fewer dollars accumulate more. The

3:48

authors note that some forms of

3:50

economic outpatient care, including subsidizing an

3:52

education and funding business ventures, have

3:55

a strong positive influence on the

3:57

recipients. They teach the children how

3:59

to fit. But most financial

4:01

assistance simply creates a cycle of

4:04

dependence. They ask,

4:06

quote, What is the

4:08

effect of cash gifts that are knowingly

4:10

earmarked for consumption and the propping up

4:13

of a certain lifestyle? We

4:15

find that the giving of such gifts

4:17

is the single most significant factor that

4:20

explains lack of productivity among the adult

4:22

children of the affluent. End

4:24

quote. Stanley and

4:26

Danko write about four specific ways

4:28

in which cash gifts to adult

4:31

children create problems. Number

4:33

one. Giving encourages more

4:35

consumption than saving and investing. In

4:38

particular, Stanley and Danko warn about

4:40

gifts of house down payments. Number

4:43

two. Gift receivers in general

4:46

never fully distinguish between their wealth and

4:48

the wealth of their gift giving parents.

4:51

They believe they're entitled to the things their

4:53

parents have and feel resentment if the wealth

4:55

is given to somebody else. Number

4:58

three. Gift receivers are significantly

5:01

more dependent on credit than are non

5:03

receivers. They use credit in

5:05

order to sustain their lifestyle of

5:07

consumption between gifts. And

5:10

number four. Receivers of

5:12

gifts invest much less money than do

5:14

non receivers. The authors

5:16

claim that gift receivers are hyper

5:18

consumers, only thinking of now. They've

5:21

come to expect that their financial needs will be

5:23

met by their parents and so they don't plan

5:25

for the future. I've

5:27

known people who received financial assistance from

5:30

their parents or grandparents. Most

5:32

of these people have struggled with money in some

5:34

way. They spent too much. They

5:37

didn't feel the need to take a job. They

5:39

put off making financial decisions because there was

5:41

no need to do so. One

5:44

time, for instance, I had an affluent friend who received

5:46

a $25,000 gift from his grandparents.

5:50

Rather than invest the money, he bought himself a new

5:52

car. There was nothing wrong with his

5:54

old car. Obviously not

5:56

everyone who receives financial assistance from their

5:58

parents will fall into But

6:01

accepting such gifts often leads to

6:03

trouble. Note, there's

6:05

another downside too. When parents

6:07

give money to an adult child, they're

6:10

compromising their own financial health. They're

6:12

sacrificing saving for retirement or other goals,

6:14

which means they're hurting themselves as well

6:17

as their kids. In

6:19

my own life right now, I'm watching as

6:21

two different sets of parents struggle to make

6:23

ends meet because they're giving up

6:25

money they need for themselves in order

6:27

to help their children who are perfectly

6:29

capable of providing for themselves. Except

6:32

they were never encouraged to leave the

6:34

nest. What if your

6:36

kid will end up homeless? No.

6:39

Having said all this, what about

6:41

Karen's situation? She has

6:43

one child who's at risk of going to

6:45

prison because she or he hasn't paid some

6:47

fines. The other is at

6:49

risk of ending up homeless. Should

6:51

Karen simply sit back and allow her children

6:53

to suffer? I've had two

6:56

weeks to think about this question. Some

6:58

days I feel as if there's no way Karen should

7:00

let her kids go to jail or end up homeless.

7:03

Other days I feel like she should absolutely

7:05

let them experience the consequences of their actions.

7:08

Most of the time, however, I feel like

7:10

this is a tough call and not something

7:12

a stranger can decide. So

7:14

I tried to practice some financial empathy. I

7:17

asked myself, what would I do if I were

7:19

in Karen's shoes? What if

7:21

I did have kids? What if they made

7:23

some stupid choices? That's how Karen

7:26

describes her kids when she wrote to me, which cracks

7:28

me up. Honestly, I don't

7:30

know what I'd do. I have no clue

7:32

what the right decision is in this situation. What

7:35

do you think? Is it always a

7:37

parent's duty to protect their children, even when they're

7:39

adults? If you ended up in

7:41

jail because you did something dumb with money, would you

7:43

expect your parents to bail you out? If

7:46

you were at risk of becoming homeless, would it

7:48

be your mom and dad's responsibility to help you?

7:51

What's the right choice here? Is there

7:53

one? You

7:58

just listened to the post titled, Should You

8:00

Give Money to Your Adult Children? By J.D.

8:03

Roth of getrichslowly.org. And I'll

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be right back with my commentary. Have

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9:21

money, the answer is often, it depends.

9:24

There are very few hard, fast rules.

9:27

The only ones that immediately come to mind

9:29

are spend less than you earn, don't buy

9:31

whole life insurance, and don't participate in an

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MLM. Everything

9:35

else is up for debate in my book,

9:37

including borrowing from or lending money to loved

9:39

ones. If I were ever

9:42

to loan money to friends or family, it would

9:44

be because I didn't see another way out for them. And

9:47

it wouldn't be my first solution. Before

9:50

I handed someone money, I would first spend

9:52

my time and energy trying to help them

9:54

find other resources and or encourage them to

9:56

find other creative solutions. If it became clear

9:58

to me, I would never be able to make a decision. that

10:01

there weren't any better options. I would

10:03

set up an agreement and expectations on payment from

10:05

them. But I would also

10:07

quietly consider it a gift and never follow

10:09

up on that money. I

10:12

would never loan money to loved ones that

10:14

I really needed back because the odds

10:16

are not in my favor. And if

10:18

they pay it back, great. But if

10:20

not, I can easily let it go because

10:22

I know relationships are more important than money.

10:25

But that'll do it for this episode. Have a

10:27

happy rest of your day and I'll be back

10:30

with you again tomorrow where your optimal life awaits.