Economic outpatient care will disable – not enable – your children. Always remember that you’re not raising kids. You’re raising adults, who happen to currently be children. Act accordingly.
It’s hard to believe back when you hold that newborn in your arms, but one day that baby will become an adult. They may be taller than you, more successful than you, or wealthier than you. Many of us parents hope that our children will one day outperform us. This desire to help them be successful doesn’t mean coddling them. In fact, it means the opposite – not enabling bad behavior, and teaching the skills they’ll need to succeed out there in the world. My ultimate goal is to to raise adults. This means them learning to “adult” before they go out to live on their own. I’m talking about things like:
-Cleaning up after yourself
-Doing your own laundry
-Cooking for yourself
-Mowing the lawn
-Work skills – working hard, negotiating, etc.
-Taking general care of yourself
-Budgeting, bill paying and general wise handling of money
Teaching my boys these things will not only help them to be self-sufficient, but will also make them a great partner for whomever they one day choose to partner with. Today I’m focusing on the money side – why it’s important to raise financially independent and wise adults (not kids), a bit about how to do it, and the concept of enabling without disabling via too much economic outpatient care.
Why Is This Important
Too often, when a family becomes successful, the kids suffer from a form of coddling. Dr. Thomas Stanley in The Millionaire Next Door (one of the four books that changed my financial life) referred to this phenomenon as “economic outpatient care”. In other words, the parents paying for everything for their kids, even as adults. Dr. Stanley was famous for using complex words when simpler ones would do. For example, the first time I read one of his books I had to look up the word eleemosynary. It means charitable. Just say charitable, doctor.
This isn’t the scenario where an adult child has an illness, divorce, or job loss and needs temporary support to get back on their feet. Now, this is a scenario where the adult child has become dependent on their parents income or support – and would suffer greatly if it were withdrawn.
For example, take Bob, the brother of one of my friends. He’s approaching fifty years old but is still heavily dependent on his parents – and always has been. From the time he was a young adult, the parents were paying his rent, caring for his kids, bringing him food, paying his bills, and even doing his laundry. He has literally never had to survive without her parents support. Those parents are now approaching their 90’s, and in not the best of health. What’s going to happen when the money – and support – faucet stops?
Even in less extreme cases, you need to consider the cold, hard facts. If you’ve built up a successful business or financial life, you’re at risk of the next generation squandering it all if you’re not careful. Unfortunately 70% of wealthy families loose that wealth by the second generation. There’s a reason that “shirtsleeves to shirtsleeves in three generations” is an actual saying. Most children squander the legacy of their parents, and the third generation squanders it even more. Until it’s all gone.
If you’ve worked hard to build up a business or a nest egg, the last thing you likely want is your kids turning into lazy spendthrifts living for their inheritance. So other than simply cutting them out of the will and leaving them nothing, or creating an airtight spendthrift trust, how do you do that?
It Starts With The Basics
When your kids are very small, the only money lesson you need to worry about teaching them is “don’t eat the money”. Once they get beyond that initial stage, you need to remember that there are two types of lessons they’re learning:
The Lessons You Teach
These are the kinds of lessons that most people think about when they talk of teaching their kids about money. Budgeting, saving, spending. How credit cards work. What debt is, why to avoid it, and how to manage it. The miracle of compound interest. Eventually, how mortgages and retirement accounts work.
The Lessons You Show
Kids are sponges. They notice everything going on around them – your money conversations, spending priorities, and daily decisions. If you’re paying for everything for them, always get them the latest name brand things, and frequently get new cars with car loans – they notice. They’ll also be paying attention if you talk about “not being able to afford” something rather than “choosing not to spend on” something. The way you handle money, and talk about money, will be internalized and become part of their own financial story.
As your kids grow, you need to keep both kinds of lessons in mind. As I’ve mentioned before, I’m the mother of three boys – 14, 10, and 2. Through the years I’ve gone through the “don’t eat the money” lesson, all the way to now more sophisticated budgeting and debt discussions. I talk a lot on this site about the kinds of financial lessons I strive to teach during everyday events in our lives. Hot air balloon festivals, school book fairs, field trips – they’re all great opportunities to teach financial lessons without lecturing about money.
Teaching Those Lessons – The How Tos
Most people say that when they were kids, their parents never taught them anything about money. In this case, they’re usually talking about that first lesson, the ones you teach. Well, no kid or teen wants to sit through a boring lecture on mortgages. So instead of hosting a five-part lecture series in your house, I recommend teaching them about those things as they come up in your own or in their life. Their first job is a great time to sit down together and go through budgeting. It’s also a great time to open an IRA and teach them about saving for retirement. What else can you do before that first job? Let’s walk through a few ideas.
- Credit Cards – Go through your credit card statements with them, pointing out the minimum payment, interest rate, and how long it will take to pay off if you only pay the minimum. Ask them how much they think that would cost you in interest – and then show them the real number. Tell them how you only use the card for what you’ve budgeted, and how you pay it in full every month so you don’t have to pay any interest. I have yet to do this but I plan to soon with my oldest.
- Compound Interest – Teach them compound interest through the old “penny doubling every day” example. You know, the one where you have a penny and if it doubles every day for a month, how much would you have. After they answer, show them this video. It’s short and I bet they’ll be amazed at the real answer. I’ve done this with my older boys, and yes, they were amazed. And I asked them the same question a few years later, and guess what – they remembered this example. I also used cashing out old savings bonds as a way of teaching my boys about compounding.
- Mortgages and Other Debt – Talk about your mortgage. I have my mortgage payoff chart in the kitchen, hanging on the inside of one of my cabinet doors. Every time I update it, I make sure to mention to the older boys how exciting it is to pay this down. I want them to remember that not only did this house cost money (so I hope they appreciate it!) but that I’m working hard to pay off that mortgage. We’ve been debt free except for this mortgage for five years now (since the oldest two were 9 and 5) so they don’t really remember any other debt. You can use the same concept for any kind of debt.
- Budgeting – Make a “mini-budget” with them for their allowance. Something simple, in the spend/save/give categories. Some folks use jars so their kids have a better visual – this is especially effective when they’re younger.
- Investing – You can always buy your kids a share of stock and use it to teach them about stock investing, like I’ve done with Disney and Nintendo. The older boys also have an UTMA/UTGA where I’ve invested a small amount of money they were gifted from a relative. When we get the quarterly statements, I go through it with them. Of course, I go into more detail with the oldest than the ten year old, but both find it informative. I want them to not only know what investing is and how it works, but also what all the terminology means.
The other lessons are both easier and harder to teach. You just need to be on the lookout for those teachable moments, talk about them, and reinforce the lessons a few times. Take, for example, that time my kids made spending purchases they later regretted. That time was used to teach how controlling your impulses and making wise spending decisions is important. Or when my oldest son wanted an expensive toy and saved up for it – we make sure to mention how smart that was as an example to the other boys. That was a good lesson in delayed gratification.
The Key Is to Enable – Without Enabling
You’ll also want to think hard about how you’re teaching the values side of money. This is the hard work, discipline, economic self-sufficiency, delayed gratification, controlling impulse purchases, and living within your means side of money.
The easy way out is to pay for everything yourself, especially if you can afford it without struggle. But in this case doing what’s easy can set your kids up for failure. Too often I see well-intentioned parents taking away learning opportunities from their children because they don’t want little Johnny or Suzy to suffer. They throw up their arms helplessly at the child (really adult) who goes to school and parties on their parents dime, or who wants to move back home to live rent-free so they can spend their money on bars and cars. As those “kidults” get older, the parents may help them buy a house in a “nice neighborhood” they otherwise couldn’t afford, send their grandkids to private school, and cover the bills when “they’ve had a rough month” every single month.
Guess what? You’re the parent, and it’s your job and responsibility to teach kids the hard things.
Just because you have money doesn’t mean they have money. Setting reasonable limits on what you’re going to pay for might not make them happy, but it will make them into better adults.
There are reasons I have pretty strict limits on what I am and am not willing to do for the boys for college – and I do expect them to chip in to cover certain costs. I expect them to have lousy jobs as (later) teens, learning the job basics like showing up on time and getting along with your co-workers. I will not be paying for their car insurance, new cars, expensive smart phones, and so on.
You enable your children through your love and affection. Through being there for them during hard times. Helping them learn to study, work hard at school and at work. Bringing them to after-school activities for fun and enrichment. Assisting them in getting into a good college, and helping them understand how they’re going to pay for it.
Giving them money, paying for their lifestyle, making it so they don’t have to work – that’s not enabling them to become a successful, productive member of society. That’s “enabling” them in the more traditional AA sense, or really disabling them from reaching their potential.
The real way you enable is through teaching them values and lessons they will use for the rest of their life. These will impact your family tree long after you’re gone.
Let me know how you teach these lessons to your kids in the comments. You can also check out more I’ve written on kids and money, frugal family discussions we have, or my kids and college resource center.
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