How you raise your kids can make or break your retirement plan
By Dr. Boyce D. Watkins, Syracuse University
As a finance professor, I am sometimes mistaken to be a financial magician, as people ask me to create money out of nowhere. I do a good Harry Potter imitation, but I am always honest, and sometimes people don’t like to hear what I have to say. I recently counseled a couple in their mid-50s that was frighteningly unprepared for retirement. At the rate they were going, they would have to become part-time drug dealers to make ends meet. Their retirement funds might have lasted them 10 minutes, assuming they chose not to eat.
Feeling like a doctor with a dying patient, I carefully analyzed the couple’s spending habits and family situation. They had 3 children, aged 22 – 30. I immediately noticed that the couple had borrowed an average of $60,000 per child for college expenses. But the financial support didn’t stop after college was done. The oldest was getting car insurance and a little rent money. The youngest had not even learned to pronounce the word “job”, as he sat at home in his underwear playing PlayStation 2.
I wondered how this couple planned to retire while running their own personal welfare office. Since they were giving away free money, I was hoping they would allow me to sign up for food stamps and free cheese myself. Their peculiar view of parenting had led them into a financial hole deeper than the one they would be buried in, and they were supplying their children with the shovels.
This couple was not alone in their problem. Affluent baby-boomers, in all their financial confidence, seem to have made a habit of stretching the financial umbilical cord. Nearly half of all young adults age 18 – 24 live with their parents, and 20% of these individuals continue to live at home after the age of 25. This doesn’t count the cases in which parents are paying rent, student loans and car payments for adult children who continue to max out their credit cards. This form of dependency is foreign to me, since my mother forced me to start paying rent when I got my first job at the age of 12. Had I requested the same financial assistance as the children of the boomer couple, my mother’s intense seizure-like laughter would have been my cue to just leave the room quietly. Before you report her for child abuse, you should know that her disciplined approach led her to raise a doctor, a professor and an engineer without paying a dime of her own money. As a rapper might say, “That’s strictly pimpin.”
If you give someone a wheelchair before they learn to walk, they will never bother to learn to use their legs. So, I did calculations for the boomer couple to show that, with interest, they’d lost roughly $1 million in future retirement funds due to the money they’d given their children. They were nowhere near finished paying off the debt, and what’s worse is that their kids were going to continue to be financial drains. The youngest didn’t appear to be letting go of the Play Station anytime soon, especially since he was being comfortably provided for already. The level of financial co-dependence was downright scary.
The question to ask is whether your children have been raised to be assets or liabilities in retirement. People are living longer, the cost of healthcare is getting higher, social security is dying and pension plans are disappearing. You don’t need to be Harry Potter to know that mixing dependent children into this financial potion is a recipe for disaster. But with a balance of tough love along with mild, conditional support, you can raise independent children without donating your financial future in the process. So, in retirement, you can be pimpin too.
Dr. Boyce D. Watkins is a Finance Professor at Syracuse University. He is currently a visiting scholar with the Center for European Economic Research. He gives regular financial advice in the national media, including USA Today, Forbes Magazine, The Big Idea with Donny Deutsch, The New York Times, ESPN, Black Enterprise and The LA Times. For more information, please visit
www.boycewatkins.com and
www.financiallovemaking.com.
Posted By: Jehan Bunch
Wednesday, August 2nd 2006 at 9:38AM
You can also
click
here to view all posts by this author...
