The Big Millennial Money Mistake

The Big Millennial Money Mistake

Millennial parents must learn that financial struggle is necessary for success

I’ve been hearing more and more about an interesting trend: millennials who define adulthood as financial independence yet still have to rely on their parents for money support, even well into their 30s.

Whether it be student loans, home down payments, or living at home because of credit card debt, parents of millennials are footing the bill—or at least significantly helping pay down—for their kids’ big debt costs.

But it’s not just millennial debt these parents are helping with. They’re helping with all ranges of millennial finances. In fact, a recent study covered by “USA Today” found that 7 out of 10 millennials had received financial support from their parents within the last year:

Parents most often help foot the bill for everyday expenses, such as their adult children’s cell phone and service plan, and food and groceries. But they also support their children in bigger ways.

A quarter of all young adults have moved back home, while a third get help with rent or mortgage payments. Two in five who own homes got down payment money from their parents, according to the survey.

Four in five millennials don’t feel guilty, but rather grateful, for their parents’ support. Most young adults view it as a way to get ahead in their early years, but almost two-thirds say the help could make them too dependent the older they get.

Why do parents help with millennial money matters?

On one level, I can understand this impulse. Parents naturally love their children and want to help them start life on the right foot. And the high levels of debt that most young people have, along with low salaries and poor job prospects, make it very tough for them to get ahead.

It’s clear, however, that putting up so much money for millennial kids is having an impact on parents. One therapist, writing for CNBC’s “Make it”, says the number one complaint of parents coming to him for counseling is the lack of financial independence of their children.

To illustrate, one mother explained how much she loves her 30-year-old son. She and her husband paid for his college living expenses, but now felt the pressure to help pay for his graduate school tuition. While they aren’t wealthy, they also don’t want him to worry about future debt.

A couple in their mid-50s lamented the fact that their daughter, who is 28 and has a full-time job, was planning to quit her job because it didn’t align with her passion. “She’s moving back home this summer,” the mother said, “but doesn’t act like an adult or want to help pay for anything at all. How will she be able to handle future challenges on her own?”

Feeling as though he’d failed as a parent, a single father told me he’s still paying for his 32-year-old son’s car insurance, rent, grocery expenses and cell phone bills. He worried that if things didn’t change, he’d have to dip into his retirement savings.

The author later writes:

As a result, parents are starting to feel a mix of frustration and fear ― not just for their adult children’s future, but for theirs as well. (According to a recent Bankrate survey, 50% of American parents said they are sacrificing their own retirement savings in order to help their children.)

It’s clear that many parents are stressed about continually forking out money for their millennial children, and that in many cases these young adults are fully capable of helping themselves. So why do they do it?

Millennial money and debt

It’s been well documented that millennials are facing an uphill battle financially. As CNBC shares:

A report in the New York Times found that, in 1940, a child born in the average American household had a 90% chance of making more money than his or her parents. That has changed. A child born in 1980 has only a 50% chance of earning more than his or her parents.

Many factors account for this. The biggest of them is that things ― housing, food, college ― cost more today. Also, many millennials who graduated into the Great Recession had a much harder time launching their career and securing a job with decent pay.

There’s no doubt about the growing millennial money struggles, but I also believe that too many parents have internalized this reality as somehow their fault or something they should be responsible for. As a result, they feel compelled to help their young adult children financially, even when it puts their own finances at risk.

They think they are helping their kids, and it’s understandable. But it’s also foolhardy. I believe that footing the bill for your kids actually hurts them more than it helps them.

Let me share a story from my past to illustrate.

The necessary pain of financial failure

My first business sold nylon and Velcro surfer wallets. We worked out licensing deals with famous rock bands and put their logos on the wallets. They sold like hotcakes and the company grew very quickly. But I made a huge mistake.

My attorney told me that I should patent my idea. When I heard that it would cost $10,000 to do so, I said no way. Soon another company came along and copied my idea, cutting into my market share. On top of that, I had a number of distributors who owed me money but were not paying. Soon my company was in dire straits and I decided to meet with my rich dad.

What I hoped to get out of the meeting with rich dad and what I got were two very different things. My hope was that rich dad would show me a path forward to save my business—and maybe even to offer some financial support. After all, he could afford to help me, I thought.

Instead, rich dad looked over my financials, stared me in the eyes, and said, “Your company has terminal financial cancer. You have grossly mismanaged this business and it can’t be saved.”

In my arrogance, I tried to convince him that he was wrong about my business, but deep down I knew he was right. Eventually, I had to liquidate my business. In the process, I went $1 million in debt.

Rich dad could have helped prevent this. He chose not too. And the pain of this financial failure was very acute.

Learning how to dig out of debt

Soon after that, I met Kim. I didn’t think this beautiful woman would want to be with a guy whose business just failed and was $1 million in debt, but we fell in love and she stuck with me.

Together, we worked hard to build a new business centered around financial education—at times living in our car to make ends meet. We both knew we didn’t want to simply go and get a good job. We wanted to build a company and we found our purpose in life. That clarity of vision allowed us to make the many sacrifices we needed in order to achieve our goal.

Eventually, Kim and I paid off the $1 million in debt and built a successful business. Along the way, we learned invaluable lessons not just about money but also about ourselves.

These are the same lessons that millennial parents rob their adult children of when they so readily help them get out of debt and give them money with no strings attached.

The painful path to millennial money mastery

The easy path for rich dad would have been to placate me, sugar coat his assessment of my business, or even to give me a loan to see if I could turn it around. Any of those options would have done me a huge disservice.

Seven in 10 adults ages 18 to 34 received financial support from their parents in the last year

Ultimately, it was rich dad’s hard words—and the hard years that came after them—that led to my success later in life. I can confidently say that had it not been for the hard truth that rich dad gave me, I would not be where I am today.

The financial pain was necessary for me, and it’s necessary for your kids, too.

If millennials are to master their money, they need to walk the hard and painful road of learning how to pay off their own debt, make their own money, and carve out their own path. Not that they don’t do this on some level already...but they need to do so without the financial support of their parents.

How to really help millennial's money woes

The easy way out for parents is to pay for their kids’ expenses and debt. The hard way forward is to watch them struggle financially while working with them to build their financial intelligence.

Rather than foot the bill, I encourage all parents to invest in their children’s financial education. Don’t pay for the debt, but do take them to a seminar that can change their perspective on money and the world. Spend time rather than cash to go over their financial statements and coach them on how to make better financial decisions. And be there when they need a shoulder to cry on.

Only by owning their own financial future will our children grow to prosper and thrive in a world where it is increasingly hard to financially survive.

Where to start with millennial money

The good news is we have many resources to help you do this. Start with going over the new rules of money:

From there, I encourage you to read and study Rich Dad Poor Dad, which has been released in a new and updated edition, and take the time to play CASHFLOW together, which was created to put the rich dad principles into real world simulation. You can play online for free.

Once these foundations of financial intelligence are in place, you can then begin advanced work with a coach, as well as attend specialized workshops and seminars. And best of all, you can formulate a plan to even invest together.

Kim and I started the Rich Dad Company many years ago precisely because we want to see you and your kids enjoy the financial success that comes from the lessons handed down to us and learned along the way. Why not start today?

Original publish date: July 18, 2017