Why wealthy parents who bankroll their adult children are hurting them
(CNN) — For some wealthy parents, the pressure to extend their social and financial status to their adult children can be overwhelming.
The recent college admission scandal revealed shocking things parents were willing to do to secure spots at top schools. But those same motivations drive some parents to bankroll their kids’ lives into early adulthood, often to the detriment of the family.
“How many times have we seen in wealthy families where the breadwinner is so inundated with making a living and providing for a family, that love, intimacy and closeness are shown through financial means,” says Dr. Alex Melkumian, a psychologist and financial therapist.
Support that keeps a young person living above their means can undermine their independence and create deep insecurities.
Dr. Bradley Klontz, a psychologist and certified financial planner who researches money disorders, calls this “financial enabling.” Often arising between parents and their adult children, financial enabling involves extended financial support that not only affects the enabler’s finances, but can also cause lasting damage to the young adult.
“The delay of financial independence is associated with a lack of purpose, creativity, drive — it can be extremely crippling,” says Klontz. And that’s to say nothing of the damage caused to the family relationships. “People then have a tendency to resent the source of their money, even while they rely on it.”
Parenting without enabling
When children grow up with the expectation of a wealthy lifestyle, it becomes harder for them to maintain that lifestyle once they are on their own. And the parents feel pressure to step in and help.
“It has to do with growing up with one identity and becoming an adult and expecting to continue on that identity,” says Tara Unverzagt, a certified financial planner in Los Angeles. “You don’t have the job to support it. Your parents have the income.”
Unverzagt works with families struggling to find the line between supporting their children and offering too much help. All of it starts by talking about money, and making sure kids have realistic expectations.
Make sure you are setting your kids up for a lifestyle they can sustain. “Because if they can’t, you’ll sustain it, and it will bleed you dry and impact your own retirement.”
She says that many ultra-wealthy parents can afford carrying a child’s expenses into adulthood but others end up hurting their own finances by supporting their kids. “They feel they should be able to do these things for their kids endlessly and afford them,” she says. “But if you continue to do it, the money can run out really quickly if you’re not paying attention.”
And that’s to say nothing of the message sent to the adult child.
“You’re telling that child, she can’t do it on her own,” says Unverzagt. “Some moms and dads want her to feel that way, that she can’t live financially without that parent. You should be striving to have an independent adult.”
Unverzagt started talking about budgets with her own three children, now all recent college graduates, when they were two years old.
“I feel it is your job as a parent,” she says. “A 4-year-old’s money mistake is nothing. Have them make a bubble gum mistake instead of buying a house at 25 they can’t afford. Are you going to enable those bad financial decisions at 24 and 30?”
Breaking the enabling cycle
Having unlimited options can be paralyzing to some young people.
“Having too many options can be overwhelming,” says Meghaan Lurtz, president of the Financial Therapy Association, who has a PhD in personal financial planning. “It happens to wealthy children a lot: I could have 1,000 careers, I could have any car I want. I can’t pick one. They appear to be the laziest bums on earth because they have so many options in front of them, it is paralyzing.”
She says that a strategy to aid in moving forward is to put boundaries on endless opportunities.
She advises parents to be clear about their expectations of adult children. “Tell them, you need to have a job, even if you’re a teacher and making $30,000 a year. You need to do something, and have purpose.”
Working with a financial therapist, a counselor who can help people think and feel differently about money, can be helpful to people in that paralyzed state, she says.
It’s okay to want your children to have the best, she says, and many people have the resources to do it. But the key is to give kids the tools to achieve it on their own.
“It is an important step to talk about what it is like to have money and the responsibility that comes with it,” Lurtz adds.