I recently attended a presentation by one of the top financial planning thought leaders in the industry, Rick Kahler.
I've been following him now for probably 15 plus years. He is constantly pushing the envelope in what we do in financial services to take it to the next level of behavior and exploring how that impacts your money.
He was one of the pioneers in developing the money script framework on how our upbringing impacts the way that we interface with financial decisions.
He, along with many of us in financial services, has observed difficult situations with children who aren't fully launched or that keep coming back to mom and dad to support them.
Below are some notes from his presentation, and if you would like to discuss this or anything else on how it might apply to your financial situation, we would be happy to try and help.
Financial enabling is the inability to say no when people ask for money. It affects both the party lending or giving the money and the person that is being enabled, and can have harmful effects on emotional health. This is often associated with feelings of guilt and shame, which can lead to hiding the enabling behavior from others. If it's hidden from a spouse, this can lead to financial infidelity, aka hidden secrets.
Rick has a six-point checklist, if you answer yes, you may be enabling your children to where it's a problem.
- I give money to others even though I can't afford it.
- I have trouble saying "no" to requests for money from family and friends.
- I sacrifice my financial well being for the sake of others.
- People take advantage of me regarding money.
- I lend money without a clear agreement for repayment.
- I often find myself feeling resentment or anger after giving money to others.
Psychological symptoms if enabling can include anger, including passive-aggressive, especially here in Minnesota! Resentment, depression, a sense of being out of control, and physical impacts can also be side effects of financial enabling.
He recently had an interaction with someone that he was helping who was spending $20,000 a month, had three kids, and a couple of million dollars, but there was a freight train coming toward them. One of the kids was demanding $10,000 a month, and there isn't enough money, so it's an undesirable situation for all concerned.
Money issues and behavior is not really about the money. It usually comes from learned behaviors and experiences, including emotional needs, which can also mean special needs kids.
A lot of people believe that giving money equals love, just as many people do with cooking food for loved ones. They want to help but don't realize that struggle is part of life, and we don't want to demonize the enablers. They're just expressing that they love their children more than anything, which is natural.
Money can also be used as a tool to feel important or maintain control and to earn and retain respect and love.
When he asked if anybody had seen enabling in their financial planning clients, 90% of us affirmed yes.
To get out of a situation that is potentially causing both parties harm, try to analyze the situation, in a black-and-white, clinical perspective: what are the pros and cons are of the activity, what are the long-term outcomes likely to be, and how is enabling outweighing the benefits long-term.
It's also important to understand that because you don't give money doesn't mean you do not care.
Practice saying no. It may involve a mental health practitioner. It may involve setting a budget with a financial advisor.
Sometimes, getting a money expert to help with a budget can also serve as a tool in difficult or uncomfortable conversations.
You might say, "I can afford to give you $2000, but my financial advisor says if I do any more, I may risk my security in retirement."
Another thing that you can say is, "Can you wait two months? I can give it to you then."
Then he recommended six signs of whether it's a healthy decision to give people money.
- If it's a one-time gift.
- If there's no expectation of repayment. This is a big trap, so usually, it's betternot toexpect repayment.
- If it will not harm the financial plan of the giver.
- If it will not create dependency on the recipient.
- Ifthe use of funds is transparent.
- If there's no history of chronic requests for money.
When you want to make a loan is, obviously, if there's going to be a true and honest effort at making repayments, but only if a commercial lender would make the loan, too. You don't want to be lending to a family member that can't get a loan in other scenarios. If you really need it back, you might not get it. Should you choose to go down the road of providing a loan, make sure there's a signed promissory note with terms clearly spelled out. Even for a small amount, set the expectation that repayment is real and expected.
There has to be an identifiable source of repayment, also. You don't want to loan to someone that is destitute, with no way of repaying you.
In a real case study, Rick went over where clients were overspending because they were supporting adult children. He went over a retirement projection showing that it did not work, and that it didn't help involving the adult child in the financial plan with the parent. He identified feelings and beliefs, and the parent was fearful of losing the relationship, who was a widow with only one child. He referred them to a financial therapist and participated in the therapy sessions with the parent and the child. Ultimately, they designed and communicated a support reduction plan that would enable mom to retain her financial security. Then, all support was withdrawn within one year. It's important to try to set a timeline and enforce it.
Another enabling thing is many parents feel obligated to pay for all college expenses, and the fact that a loving parent pays for all college is a common money script. With costs today, it's frankly not possible in many cases. Creating expectations with the child, not only on the loan and their contribution, but also on pursuing a path with a reasonable career outcome, is critical.
Rick talked about how we're able to not only help clients change their behaviors around investments, cash flow, insurance, estate planning, and tax strategies, but also change the relationship with money around other members of the family and friends.
Money enabling is commonly a relapse-type behavior, so it's something that you'd want to talk about on an ongoing basis. It takes practice and effort to get good at good money behaviors, just like anything else, especially when there are emotional issues in the mix.
It was made clear that our left brain way of normally handling problems like this, which would include torturing the data to see how the plan would work at current spending rates and reinforcing the issue and reiterating consequences, really doesn't work. We need to help people with anxiety and fear, let them understand that change is important and possible, and that they need to have the confidence to make that change. Resistance to change is normal. We want to reflect upon both sides of the parties, both the person that is requesting the funds and the person that has the resources.
These conversations are often viewed as confrontational and likely to elicit anxiety and defensiveness. If you ask a lot of why questions, you can put the person on the defensive. Ask to “tell me more” or probing, open-ended questions. Try to get at the root of the matter and why the person continually needs money from mom and dad.
Rick had 12 ways to keep your child from changing. These questions increase resistance and decrease the potential for change. Asking questions that point out the discrepancy in what's going on, telling stories about successful people, lecturing, and providing more data, scolding, setting deadlines, threatening, giving orders, warning, blaming, interpreting behaviors, persuading with logic, joking, disagreeing, and minimizing.
Bottom line is, this situation, if it's happening to you or a loved one, it’s not easy.
The first step, of course, is identifying it, and the second step is grinding through trying to find a healthy resolution. A scenario that will last long-term for the person with the resources and get the person with a need in a place to where they are self-sufficient and self-supporting.
Thank you for taking a look!
Tom