During my 24 years as a financial planner, I have seen parents make choices that compromise their retirement or future financial goals. While it is challenging to tell clients how to parent, I believe that as advisors it is our job to advise in matters of money, since we have so much insight in to the relationship between money and family dynamics.
I can say with certainty that there are specific patterns we can watch for and advise clients on how to help protect their goal of retirement.
While my own child is only 12 and I am sure I have many more parenting mistakes to make, here are some I will not be making as I have seen (or lived) the consequences of them myself. I refer to them as my “Dear Parents, please protect your retirement” lessons.
Teach your child the value of money.
Don’t give them everything they ask for. Even at a young age you can limit what you give them or make them earn it. Show them what it is to live within your means. Discuss what you value and how you spend money to support those values.
Make them get a job.
Again, at a young age: Do yardwork or babysit for neighbors. Walk dogs. College students who also work on average have higher GPAs than students who don’t and tend to be more efficient with their time management. All of this is helpful for working in the real world.
Don’t let them attend the most expensive school they get into if you cannot afford it.
For many, education means sacrifices but as I like to remind clients, there are no loans in retirement. And trust me, Medicaid is not a retirement plan. I have seen parents mortgage their homes and take out massive loans to fund college. Education is so important and helps to make children more employable but there are options besides jeopardizing your financial future to pay for it.
Don’t assume your kids will support you in your old age.
At that point, they will likely have their own families and if they have to make a choice, they will most likely support their kids rather than their parents. Harsh but true. I have heard so many clients, especially older women, tell me, “Oh well they will help me out if I need it.” Sometimes it happens but more often it does not.
Don’t allow your children to move into your house rent-free.
They will never leave. No matter what, charge them something and make them contribute towards utilities and food. And speaking of food, don’t cook for them or do their laundry; you do not own a hotel. Then they will really never leave.
Don’t continue to pay for their lifestyle once they are gainfully employed and on their own.
Many parents keep children on health insurance plans until they are 26, or on family cell phone plans. This is very generous but doesn’t help them to learn to live within their means, which is a very critical life lesson.
If you decide to gift to your children, tie it to something you value.
Yes, you can tell them how you want them to spend your money, especially if it is for additional education or a house down payment, things which will help their financial future. This will not only promote your values to them but help them to use the funds wisely.
Even if you can afford to give to them, should you?
Look at Warren Buffett. He could leave his children billions but decided to give his children “just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.”
Divorce is tricky.
This is where I have seen many clients get involved financially with adult children, especially if grandchildren or an abusive spouse is part of the equation. I realize it is a tough predicament to be in. One client agreed to help his son finance a new house when he got divorced, and then had to do the same when their other two children also got divorced. This meant that at 72 he was still working to replenish money they had spent from their retirement savings.
Learn that you cannot fix an addiction by giving the addict money.
This is where tough love really has to come into play. I hope it never does because this is a heartbreaking scenario but financially supporting the problem is feeding the addiction. Like most families, we have relatives with addiction issues and I also worked with the Massachusetts Council on Compulsive Gambling to help develop financial protocols for their counselors.
What are my credentials to write this list?
Twenty-four years as a financial planner, including working as a trust officer, where I saw the cycle of guilty parents trying to assuage their kids or make up for a tragedy with money. Then the kids had no sense of reality and didn’t know how to handle money in the real world.
I would talk to parents who had regrets about how they raised their children, not being around enough, or guilt that children were raised in a household with addictions, so they would throw money at the problem.
One sweet woman felt tremendous guilt that her husband died suddenly when her two sons were young and didn’t grow up with a father. The sons both have excellent credentials and successful careers, but she pays for private school for their children, expensive vacations and sends them hundreds of thousands of dollars a year to support extravagant lifestyles.
My parents taught us to be smart with our money.
When I was little “there was no money,” as my mother will still remind us, and I remember knowing better than to ask for things. As my parents became more established and worked hard to save for what they felt was important (education and experiences) we always talked about money together as a family.
I had my first job at 11 and haven’t stop working since. In college I worked 80 hours a week in the summers to build up my savings, and had two part-time jobs in college. I went to a state school because it was a fraction of what the private school would be.
When I graduated, the job market was tight but I was one of the few people I knew who had a job. It paid $1,500 a month and sometimes I slept in my car because I was a traveling teacher and that is what I could afford. I put myself through graduate school and found a job that paid for additional credentials I wanted to earn.
A Multigenerational Journey
I moved back home when my dad became ill and my parents charged me rent. I only stayed long enough to make sure my dad was on the road to recovery. I bought my first house at 29 with some money my grandmother gave me as a down payment and had roommates so I could afford the mortgage. I paid cash for my second house with no mortgage because I sold the first at an opportune time in a hot market.
I have always funded my savings, even when it meant going without more enjoyable things in life. I did all of these things because my parents taught me the value of money and made me work for it. My 12-year-old has a savings account with over $500 in it, and a job feeding neighborhood pets. I hope I am doing the same for her.
For more on this topic, I highly recommend the book “The Opposite of Spoiled” by Ron Lieber.
Lauren Gadkowski Lindsay is a fee-only CFP licensee at Beacon Financial Planning in Houston, Texas. She can be reached at firstname.lastname@example.org.