A Fathers Dilemma: Can We Help Our Children, Without Crippling Them?

Breakdown in the Becky Lane!
I'd just sat down at my office away from home, the local Panera, when another regular customer, Harold, sidled up to my table. We'd chatted a number of times before, and he was intrigued by my title of Financial Sanity Coach and knew I had been working on my book, "Good Debt, Bad Debt" (Penguin-Portfolio,Jan. 2005) at this very table for the past year. Today he sought my advice on a weighty matter.
"Jon, I am thinking of buying a car for my daughter," Harold confessed. I didn't need to hear any more to know what was coming next. And when I did hear the whole story, I didn't know whether to feel sorrier for the daughter or the father. Apparently, Becky had been working for three years and had succeeded in saving an amount roughly equal to one eighth of the tip I'd left at the counter. Now Dad was about to reward her excellent saving behavior by buying her a car.
Unbeknownst to Harold, he was about to initiate a life-long process that Stanley and Danko, authors of The Millionaire Next Door, call "economic outpatient care." There's only one cure, as I advocate in my own book, Good Debt, Bad Debt : crimp the cash flow, now. If this sounds like "tough love," it is, and for good reason: kids who can't save a good chunk of their income are destined to become financially challenged when they finally do leave the nest.
Sadly, even with a big jump in salary, most young people continue to spend like they did when their parents were footing everything, from essentials to lifestyle extras. Their "metabolic spending set points" work against them when its time for them to pay ALL their expenses.
To explain the problem, I gave Harold the following example: "If you're living at home and make $200 a week and spend it all, there are no immediate consequences. Suppose you spend all $200 on going to the mall, eating out, concerts and clothes? No problem. Mom and dad cover the serious stuff. But once you start living independently, even if your salary starts at $1,000 a week, there's a problem with spending $200 a week on fluff. For starters, taxes are higher; total housing expenses will be about 36 percent of salary and has, for 23 years kept pace with income. Suppose housing expense (rent/mortgage/utilities/taxes) chew up 36 percent, taxes take 28 percent, and your lifestyle choices cost 20 percent of salary. This leaves less than 14 percent of income for everything else: food, transportation, retirement, etc. That aint much...."
Harold nodded as I went through my example. I could see by his body language that this was a painful topic for him. "Hey, it's natural to want to do nice things for your kids," I said to assuage his guilt a bit. "The problem is finding a way we can give that doesn't cripple the ambition and thinking of the recipient."
I also explained the plan I've been using in my own home. Here's how it works. My wife and I allow our kids to spend only 50 percent (40 net) of the money they get from small jobs and gifts; the other 50 percent must be saved. When my 13 year old son had a job helping a neighbor insert ads for a commercial paper route, he was earning $20 a week. He would bank $10, tithe $2, and use the remaining $8 for games, books, or special treats. Several times when he wanted a $40 Nintendo game, he understood it could take five weeks to save the money. Often, he would strive to come up with special jobs around the house to earn the money faster. This plan seems to work pretty well -- it provides enough cash to generate some immediate benefits, while enabling my son to experience the pleasure of watching his savings grow. So far he hasn't complained one iota.
Harold's eyes widened as I described how the 50-percent plan works in my household. I could see that the gears were turning. This was the time to make my real point. "Harold," I said, "You're obviously a successful guy and you got to be that way by exercising good judgement and fiscal diligence. Don't you want to pass on those qualities and skills to your daughter?" Harold raised his his Rolex clad wrist in front of his chin and thought for a moment."Maybe Becky would be better off it we didn't pay for everything," he admitted. "I'm gonna give this some thought."
Apparently, it wasn't a whole lot of thought. About two weeks later I looked up from my perch at the bakery and saw Becky and her dad driving by in a new Camry Solara convertible. Oh well, the road to fiscal hell is sometimes paved with good intentions. Maybe Harold will remember the first mile of his descent when he's still paying for Becky's car repairs twenty years down the pike.

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