Closing the Bank of Mom and Dad

The retired obstetrician made a lot of the right moves in teaching his two kids about money. He and his wife instituted allowances when the children were young and were open and frank about the family finances as they matured.

So why did this physician end up bailing both of his children out of debt several times as young adults, prompting him to write them angst-filled letters full of worry about their lack of financial responsibility?

“My parents were divorced and my mom’s ability to earn a good income was limited, which I think is probably what led me to become a doctor,” says the physician, who asked not to be named out of privacy concerns for his children. He was rewarded with a high income, but acknowledges now that it created adult children who know he’ll always come to their rescue.

It’s an increasingly common dilemma: Affluent parents are cutting the financial cord much later in their children’s lives as the kids navigate a difficult economy and live in a world where debt is no longer taboo. They help with down payments on houses or let kids return home rent-free after college, pay off credit card debt to avoid a record of bankruptcy, keep them on their health insurance plans longer, and foot the bill for extended career training.

That last one - education - is a particular problem for doctors, experts say. Physicians tend to value education highly, and many want to spare their kids the debt burden they faced themselves after medical school.

The unintended consequences of these so-called Boomerang Kids (they keep coming back for more), however, can be devastating. Adult children who lack independence and ambition because they’ve never struggled will have a very difficult time changing course, and the extended handouts could compromise your own retirement dreams.

“There are some real good, solid kids out there today who graduated with high grade point averages who still can’t find jobs,” says Jeffrey Phipps Sr., a financial adviser and vice president with Merrill Lynch Wealth Management in Delray Beach, Fla., who has a large number of physician clients.

Phipps says he doesn’t stand in the way of clients who want to help kids out of temporary difficult situations, but when it’s clearly becoming a recurring problem for the parents or children, he doesn’t mind “playing the heavy.”

Clients whose adult children have balked at financial limits have often used him as the bad guy, saying to their kids that if they don’t like the rules they can take it up with Phipps. So far, none have.

For those without such white-glove handholding from their financial advisers, talking frankly about money is the only substitute.

Patrick Sullivan, an anesthesiologist and U.S. Army reservist in Marshfield, Wis., and his wife, Lynda, have reared seven children ranging in ages from 16 to 35.

With such a large brood, Sullivan says, it has been imperative to communicate what they will do financially for their children. Not every child received the same amount of help - the boys were strongly encouraged to do military service to pay for college while the girls got help from mom and dad - but there were clear limits.

One of his daughters, for example, was admitted to a pricey private college. The couple couldn’t justify the outsized expense for one child, but made a bargain with her that they would pay for the first two years at a community college and then finish at the private school.

“None of the kids has asked us for anything as adults and they know we don’t have a million dollars waiting for each of them,” Sullivan says. “But even if we did, we’d probably be the same way because money from parents can be a lot like welfare. It takes away your independence.”

How can you get your own kids to stop asking for money? Of course, starting financial lessons when they’re very young is a given, but it’s too late for that - your kids are already adults. So here are some guidelines you can follow now:

Take care of yourself first

If you’re affluent but not fabulously wealthy, this discussion becomes pretty easy, and it’s a good one to have even before anyone asks for help. Tell your kids you love them, but now that they are adults your first obligation is to fund your own retirement so that you don’t wind up on their doorstep someday.

The very thought of that often jolts adult kids into realizing their money requests could come back to haunt them, experts say.

“Most grown kids have no idea what their parents’ assets are,” says Jane Isay, author of “Walking on Eggshells: Navigating the Delicate Relationship Between Adult Children and Parents.” “This is shocking to many people, but you need to level with grown children about what you have. It takes the mystery and the energy and love/hate out of the money.”

Look in a mirror

If your kids’ requests aren’t going to be a significant hindrance to your own financial health, then you have some more complex terrain to cross. For starters, examine your own motivation for helping. Are you using money to keep a psychological hold on your kids?

“There are some people who really do want their adult kids to be dependent on them,” says Eileen Gallo, coauthor of “Silver Spoon Kids: How Successful Parents Raise Responsible Children.”

If your own motivation is part of a cycle of dependency, you’re going to have to stop the cycle by unequivocally denying a request or two, says Jon Gallo, Eileen’s husband and coauthor. The couple also has a consulting firm that counsels individuals and financial advisers on emotional issues related to money.

“Why would an adult child stop asking if every time they ask they get what they want?” he says.

Attach strings

While you don’t want to tie emotional strings to your financial gifts, it’s quite alright to attach practical strings that protect your downside and give your child a sense of pride in her own role in the deal.

Insist on a conversation about how the money will be used and how it will set your child on a path to independence. If it clearly won’t serve that purpose, re-examine whether the request is one you want to support.

The Gallos recall a client whose son graduated college with substantial credit card debt, and he asked his father for help. The father said he would pay half the debt if the son would pay the other half so that the debt would be wiped out instead of cut down.

“The other condition was him saying, ‘please don’t ask me to do this again,’” Eileen Gallo says. “It was a half-bailout and I thought it was a great plan. It said, ‘I’m going to help you, but you have to share the pain.’”

Be clear about your own values. It’s alright to declare you will help one child with college, but perhaps not to buy the other child a new car.

Over time, however, be aware that siblings never forget if there is an obvious imbalance in what their parents gave them. You instinctively may want to help your neediest child more, but realize he could squander your money much faster than your other kids and the imbalance will likely be a wedge between them for life.

The power of no

What if you want to say no but are afraid of what it will do to your relationship?

“When kids really feel supported and taken care of emotionally, it becomes much easier to get a little tougher about money,” Eileen Gallo says.

They gain an inner sense that if anything went terribly wrong you would of course support them, but that you’re confident they can take care of their own lives, she says.

Isay adds: “Parents will sacrifice to keep their children safe and warm to the end of time, but I don’t think that necessarily has to be a financial calculation.”

Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. As a contributing columnist for the Chicago Tribune, she writes a weekly, syndicated retirement column called “The Journey” that appears in Tribune newspapers across the United States. She holds a bachelor’s degree and master’s degree from the Medill School of Journalism at Northwestern University. She can be reached via physicianspractice@ubm.com.

This article originally appeared in the September 2010 issue of Physicians Practice.