How many times do your kids come to you and ask for money?
How many times do your kids come to you and ask for money? How often do you say no? If you think about it, your relationship resembles a magical ATM that never shows a balance or ask questions about credentials. Sometimes it gives whatever amount is requested, and sometimes it denies the child asking, but this magical ATM is consistent and never tied back to a balance.
Sound familiar?
This phenomenon was so common in our interviews that we've coined this relationship between children and parents as the Bank of Mom and Dad.
It's almost inevitable that your kids will think of you as a bank. Children look to their parents to provide for and support them. Poor expectations and habits can lead to an unhealthy dependency that is in danger of continuing in our kids, even as they grow to be adults.
Of course, as a parent, you provide for them when they're small, but as they grow—if you're wise—you'll gradually move into a relationship that mirrors that of a banker instead of a benefactor. Remember the magical ATM—the child who gets money every time they go to the ATM without constraint, never sees a need to work, budget, or understand the value of money.
It's not anyone's fault, but it is the responsibility of the parent to raise their children in a way that leaves them financially responsible. If they knowingly or unknowingly look to you as a bank anyway, then some constraints should be in place that protect your relationships with your kids and act as a great tool in their financial literacy.
Danger in the Gray
Let's talk about Travis and Emma's situation. They had parents who were very generous in their gift-giving. Emma's parents gave Emma and Travis a brand-new Toyota for their wedding. When it was time to purchase a home, they loaned them the down payment for a house. The terms of the loan? "Just pay back that original amount, no interest." No payback schedule and no due dates. Nothing like "pay us back in five or six years." They just said, "When you can." They made similar loans to all of Emma's siblings. Used to their parents' free, easy financing, Travis began to notice that his wife's siblings had no intention of paying them back. Confused, he approached his in-laws and asked, "This is a loan, right?" They responded, "Yes, it's a loan, but you can pay it back whenever you feel you can." After that, they never asked about it. Travis felt he should pay them back, and he did, but he thought that the siblings interpreted their" loans" as gifts and was alone in paying his in-laws back.
Because of this experience, Travis established a more defined "banking" style relationship when loaning out his money. He clearly outlines when the payment is due, the interest rate, when the loan matures, and any other relevant details. He wants to make sure everything is clear. "I want them to feel like they have to do something for the money."
Travis's experience perfectly exemplifies why a family banking relationship needs to be carefully thought through and clearly articulated. If it's not written down, there is danger in the gray. If expectations lie in a gray area, a relationship could likely be ruined.
Every parent is a bank to their kids, but hardly anyone I know operates from a charter or a set of rules. Without clear-cut terms, things become ambiguous around money, and ambiguity is dangerous, especially when investments and money are involved.
When life tells us no, the parenting is done. When there are things in life you can't have because of circumstances outside of your control, no further action is required because not having the thing you want is simply a natural consequence of life circumstances. However, parenting becomes a necessity when the ATM occasionally gives money freely while other times, it refrains.
Julia’s Tough Lesson
As we earned more income and the kids got older, we paid for all the simple things—their clothes, a car, and activities. When our daughter went to college, we paid tuition, room, and board. Honestly, we didn't think anything of it.
But then her spending habits changed, and her bills got bigger. We were enabling her spending, paying for an extra year and a half of college. When she got married, we were excited—at last, she'd be on her own. But it didn't work out that way. She would still text us, and we'd cover the rent for a few months, but then it was a few more months. We thought it'd get better, it'd get better, but we kept having to open the checkbook. Finally, there was a divorce.
She moved back in with us, and we covered more schooling so she could change her career. But it went on and on for several years. Eventually, we realized she had a behavior problem, not an asset problem, and we cut her off with a couple of months of living expenses. No more opening the checkbook. I thought we were very reasonable—she was thirty years old, she would go out and get a job, pay her rent, and it would all make sense. But what happened? She blew up at us.
There is no longer any relationship. Now she says she hates us, that we don't love her, and that she will never talk to us again. She posts on social media how mad she is at us. But I've heard from my son, her brother, that she is gaining confidence in herself and paying her rent for the first time in her life. She's realizing that she can do it without us. Of course, we're hoping she'll come around and we'll have a relationship again, but we're worried that might not happen.
Quite literally, the lack of a contract or financial structure got us into this situation. Nothing was written down regarding our financial relationship with her, so we can empathize with her feelings. The ATM was always giving her money, and suddenly, it wouldn't give her anymore. It was the "gray area" that killed us—the absence of a clear understanding of our responsibility and hers.
How sad is that? These parents provided everything for their daughter and did what they thought was best at the time. Money is why they no longer have a relationship with their daughter. I look to that story as my own worst nightmare, as I'm sure most parents would. We all want meaningful relationships with our children and will do almost anything to avoid every scenario that risks our relationship.
In addition to putting your relationship with your children at risk, consider that undefined and unrealistic expectations might damage the character of your family members. Their core attributes and the type of person they become may also be at risk.
Jenny’s Downfall
Jenny grew up dependent on her parents for financial support. They bought a house for her and her husband. The idea was that Jenny and her husband would pay rent to the parents, but when they reneged on that agreement, there were no consequences. When Jenny's marriage got rough, they divorced, and her parents have continued to cover all her expenses. Unaccustomed to being self-reliant and used to nice things, Jenny consistently takes advantage of this kindness, even when she wants to indulge herself in extravagance. Jenny's parents are at a loss. Jenny has developed a behavior problem, not an asset problem, and they're trying to figure out how to move forward.
We are all creatures of habit. When we make a habit of depending on the help of others, we start planning our lives around that help. If we take responsibility for the choices of our family members, we deprive them of the chance to become responsible for themselves.
In this light, the purpose of the Bank of Mom and Dad extends beyond distributing wealth to teaching family members how to keep commitments. It becomes an instrument for developing responsibility in your children, and its value lies in the discipline it provides. Children learn to make and keep promises, which helps them avoid debilitating dependence. Parents learn how to raise independent kids and how to set clear boundaries.
Set up your own Bank of Mom and Dad here.
