Parents Who Pay for Everything Shortchange Their Kids
We've gone from being Helicopter Parents to Bulldozer Parents, who annihilate all obstacles in our kids' paths. And what do kids learn when we take care of everything in their financial lives? Certainly not independence.
![Young woman scratches her head](https://cdn.mos.cms.futurecdn.net/73CuhsmqzWWBgBkD2JShXc-415-80.jpg)
The common measure of success for any parent is that their kids have things easier than they did. For the Greatest Generation, that might have meant owning a home in the suburbs, for the Boomers it meant that each of their kids would go to college, and for Generation X, perhaps it means that their kids will be able travel abroad or pursue a creative career. But as the trend has evolved, the pendulum may have swung a bit too far on the easement side of the responsibility-opportunity equation. And as parents work ever more assiduously to smooth out the road for their children, they may be removing important learning opportunities along with the speed bumps.
In many families, parents play a significant financial role in their children’s lives. This often continues as their children enter adulthood, and in some cases, extends quite a bit further than help with a house or a car. For college, many parents decide to pay outright for their children’s tuition, room and board. They may also pay for their books, phone and cable, and provide a monthly allowance too. These contributions are likely considered to be helpful, as they remove stress from their children’s lives, and ostensibly allow them more time to focus on their studies and philanthropic activities.
But the reality is that by directing these bills away from their children, they are removing the opportunity for them to learn about budgeting, comparative analysis and to build their own credit.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You can’t underestimate the value of research and budgeting
Let’s consider housing while the child is in school. By signing a lease for a child’s off-campus housing, the parent is taking away the chance to learn about the rental market — how prices change from one street to the next and from one building to the next. They would also miss an opportunity to manage a significant monthly expense and to build their credit by making their monthly rent payments. Other potential learning opportunities they would miss out on are negotiating the lease or, at the very least, understanding and meeting the terms — such as first and last month’s rent, the deposit and requirements like rental, utilities and employment history.
All these elements are lost if the parent coordinates and secures housing for their child directly.
And there are other ways to secure appropriate housing without removing all the responsibilities. One option would be to task the child with researching their housing options over the summer and putting together a comparative analysis of what their top three options would cost and how their location, amenities and safety features stack up. Another option would be to provide the student with a monthly allowance but establish their phone and cable bill in their name, so they could learn to budget and manage their outflows while building their credit during their time in school.
Another common mistake parents make is how they help their child acquire a car. It may seem like a wonderful gesture to give your child a car as a Sweet 16 present or for graduating high school, but by purchasing a vehicle outright or by keeping the title and monthly payments in their own name, the parents are really withholding a number of important financial lessons.
If a parent were to instead give their child a subscription to Consumer Reports and $20,000, the assistance would be immeasurably more valuable. With this approach, the child would be responsible for learning about the comparative value of the top choices in their price range, how they rank for fuel efficiency, resale value, maintenance costs and other real-world considerations. And better still would be having them visit a few dealerships to navigate the negotiation process and learn firsthand how the various option packages impact the price.
If a child had a set amount of money to spend, they would make a much more careful determination about whether they needed a touring edition or whether a second-tier model with all-wheel drive would suffice. Likewise, by giving the child the agency to select their own vehicle, and to do the necessary calculations to determine their down payment and monthly payments, the child will get unparalleled exposure to how financing and interest rates work, why credit is important and what a 60-month financial commitment actually feels like.
For older children, make financial education a priority
For some families, financial support for their children reaches well into adulthood. There are many family situations where adult children have their mortgage and car payment managed and paid for by a family office, financial adviser or a trust. Parents may provide their children with a monthly allowance as well — and with the significant bills paid through a trusted professional, the only budgeting the child is responsible for is managing discretionary expenses like dinners, travel and entertainment.
The downside of this type of support is that the child will miss out on the chance to build credit, learn how to budget or develop any real sense of financial responsibility.
A better plan to support your adult children is to provide them financial education about estate planning and tax planning and the impact significant purchases have on long-term goals. If a child does not understand these critical planning concepts, when their parents pass on, they will be completely unprepared to manage their inheritance, never mind preserving the family’s wealth for future generations.
While it might appear to be magnanimous, and even expedient to clear the way for your children to pursue their dreams with all the financial challenges removed from their path, if you don’t allow them to participate in their future in a meaningful way, you’ll really be setting them up for a mad scramble when the wealth is actually transferred. Fortunately, such chaos is preventable if you let them learn by experience and play an active role in paying for those essential components that will pave the way to for a smooth transition to independence.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Matt Helfrich is President of Waldron Private Wealth, a boutique wealth management firm located just outside Pittsburgh, Pa. He leads Waldron's strategic vision, brand and value proposition and overall culture of the firm. Since 2002, Helfrich has served in a number of roles including: Chief Investment Strategist and Chief Investment Officer, where he was instrumental in creating and refining Waldron's investment discipline.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published