67 And Bankrupt: Are The Kids To Blame?

The following post is from Neal of WealthPilgrim.com. After reading the article, be sure to sign up for free at Wealth Pilgrim to receive more from Neal. Also, be sure to check out Neal’s free “Holidays Without the Headaches” program for families. Great stuff!

Larry and Abby are in their late 60’s.  They are broke, about to lose their home and there is nothing they can do about it.

But it didn’t have to be this way.

10 years ago, they had over $500,000 saved on top of the two rental units they inherited when Larry’s mother passed away.  At the time, Abby owned a successful small business and had a comfortable income.  Everything looked like peaches and cream.

So what happened?

Patrick happened.

Pat is their son.  He borrowed money from his parents seven years ago to open his auto repair business.  Pat was a great mechanic but a horrible business person.

Larry and Abby just wanted to help their boy.  They convinced themselves that the money their were forking over was just a loan.  They were sure Patrick would pay them back some day.

But as the days passed, the likelihood of seeing that money again grew smaller and smaller.

He slowly drove the business into the ground.

But each time he feel deeper into the hole, Larry and Abby were there to bail him out.  They were sure that all Pat needed was a little more working capital.

Of course, this enabled Pat to amass even greater debt.  Within three years he exhausted all his parent’s savings.  They had to sell all the real estate they inherited and they refinanced their home as well. Even after going through all that, Pat was left with debts of over $300,000 including $150,000 to the IRS.

He was much too proud to close the business.  He was determined to make it successful – even if it meant spending every last dime his parents had.

So was Patrick to blame for Abby and Larry’s financial destruction?

Not in my opinion.

Abby and Larry volunteered to become an ATM machine for Patrick.  Nobody put a gun to their heads. But that wasn’t really the root problem.

You see, the reason they wrote blank checks to Pat was because they didn’t take the time to think about what impact their decisions would have on their own financial future.

They were very mindful about their spending – except when it came to supporting their kids.

Pat needed money.

They wrote him a check.

It was automatic – and it was ridiculous.

Abby and Larry put their heads in the sand. They didn’t pay attention to their own financial plan. In fact, they didn’t have one.

Sure they had assets and income. But even though their estate was worth over $2.5 million at the high point, it didn’t last long once they started writing checks for $50,000 every other month to keep their kid in business.

I know this is an extreme example.  You might not be sending huge amounts to your children….but the amounts don’t matter.  And it also doesn’t matter how your kids spend the money you give them.  I don’t care if they use your money to open a successful business or go to Harvard.  If you can’t afford it then you can’t afford it.  Period.

How do you know you can afford the support you give to your kids? Have you ever said “no” to your kids when they asked for financial help?  How did that impact your relationship?

If you are on the receiving end of this, do you have an obligation to your parents to discuss the ramifications of their support?

Comments

  1. Your children are not to blame. Just because someone ask for something, does not mean that they should get it. You have to be the grown up example and help only if you can. It does no good for you to go under and need help yourself. If, their business was needing that much help, it was not going to make it. Some times letting go of the “black hole” is the best thing to do. Hope things work out well for you.

  2. What a lesson I hope to remember. Currently reading a book called The Principle of the Path, and this post is a clear example to me of how intentions aren’t what really carry us to (or prevent us from reaching) an undesirable destination.

  3. If you can’t afford it then you can’t afford it. Period.

    I don’t agree with this statement.

    If someone asked me to spend money for tickets to a baseball game and the money wasn’t in my budget, I would say “I cannot afford it.” If one of my boys asked for money to help with a serious problem, I would give him the money if it was the last dime I had access to. What I can “afford” or not afford changes with the circumstances.

    I certainly agree that in the scenario described mistakes were made. But I think that the parents were right to be more willing to direct money to helping their child than they would be to direct money to lots of other things.

    There are lots of stories that could be told in which parents gave money to their children and the results were wonderful. There are some stories that are as extreme in the positive direction as this one is extreme in the negative direction. I don’t doubt that there are stories of children who grew up to cure diseases only because their parents were willing to help them with the expenses needed for medical school.

    These parents did indeed make terrible mistakes. But I don’t think that we should overlook that they were acting out of love. That counts for something in my book.

    Rob

  4. This was an eye opener for me and I liked Rob Bennett’s comment.I am guilty of helping and maybe too much.My daughter has never asked for anything but I paid for college,wedding and very generous at birthdays and holidays.I should have paid off debt FIRST….it is a balance that I have obviously not struck yet but I am trying and I am much closer to than before.It has caused hard feelings betwwen my husband and myself and slowed our financial goals.However she is the first thing I think of each day and the last, would do anything to help her and I am not in any way taken advantage of.This helps towards pursuing balance.

  5. I think there’s a difference between helping your kids and enabling poor money behavior. It’s a fine line, perhaps, but parents have to do more than just hand over the cash. They also need to teach their children how to handle money. And I think a compromise is in order. My parents agreed to pay for my housing expenses and meal plan (if I agreed to live in the dorms, which was less expensive) if I took care of my college tuition. I knew this was the deal from the outset. My parents taught me about saving, and about looking for solutions. As a result, I did what I needed to do to get a full tuition scholarship. My parents held up their end of the deal. And when I was able to get a job as a resident advisor halfway through my schooling, they didn’t have to pay for my housing anymore (although they still picked up the tab for my meal plan).

  6. @Rob
    Your example is of a singular instance. If my boy had a serious problem, I would help him. What part of starting a business is a serious problem? The article talks about something their son chose to do. Not a situation he was forced into and needed bailed out of. But even at that, when does a child learn to stand on their own two feet?
    I have watched my parents send money my brothers way for years as he continues to make horrendous decisions. And at each crisis point, my dad is quick to say “We can help if you need.” Meanwhile my mother looks at retirement accounts that are not where they should be for a couple of 61 and 58 y/o.
    That’s why I like Dave Ramsey so much. He gives us a simple plan and priorities. It’s good to pay for your childrens college, but not if you aren’t saving for retirement. Don’t get them backwards. If you want to help out a family member in a crisis situation, fine, but only do it if you can give the money away.

  7. I agree that if you can’t afford it, you can’t afford it, regardless of where that money’s going. When you run out of money, someone else has to shoulder the burden of taking care of you. And if that money went to a child who has zero idea how to manage money, I doubt that the child’s going to be the one helping out the parents. Love should not be an excuse for poor decisions, yet people seem to use it far too often.

    As the flight attendants always say, “Secure your own mask before assisting others.” Or, make sure you know how to swim before you try to save a drowning person. If you want to help someone out of love, make sure you only give as much as you’re willing to lose.

  8. While the scenario above us an extreme example, it’s all to easy to do your kids a disservice by slipping into enabling mode. (And of course you can hurt your own financial situation as well.)

    As a smaller example of how this kind of thing can start, my teenage son asked me recently if he had enough money to get pizza while he was out with a friend. I told him no, and he said ok.

    Now, there’s already a little something wrong with that: he should have known his account balance himself without needing to ask me. But I made it worse, because a few minutes later I told him if it was $5 or less I would give him some money. How will he be inspired to earn more if I just give it to him?

  9. This is wild — instead of Patrick putting himself or his business into bankruptcy, he may have put his parents into bankruptcy! I’m not laying blame at his feet necessarily — his parents could (and probably should) have said “no” much earlier. I admit I’m not a parent and thus haven’t experienced this from a parent’s perspective — but from the child’s perspective, I wouldn’t have let my parents put themselves in such a bad position.

  10. What a sad story. To work so hard, and then have it all flushed away.

    A friend at work has a similar issue, his sister is still receiving handouts from his parents. They are in there late 70s and are now asking him for help. Mind my friend’s dad is still working (part time)… At 70 , I think his dad deserves to retire.

    I know I won’t be that way with my kids, they can apply for and get a bank loan if they want to start their own business!

  11. My question is, if the parents were going to bankroll this deal, why didn’t they just take over the business side of things and the son be their employee/manager? On the flip side, they always say if you give money, you need to give it freely (without expectation of return). That looks like what happened here – or should have happened, since they did not treat this as a business deal with a contract. Sad, sad situation and another example of the fact that when the person can’t get a loan from a bank that is all the more reason why YOU or whomever should not lend that person any money!

  12. My take is the parents should have looked into how the business was running as they were pouring money into it, the first loan to get it running I could see with no interferance, or very little, then beyond that, it’s their money they should be involved in the decesions on how the business runs, and see all the books.
    Same goes for college, first simester if you party to much and don’t do well, then you don’t get help with tuition.

  13. The answer to this one is difficult and simple. Difficult because good parents want to see their kids succeed, yet don’t want to become enablers. Simple because it’s obvious kiddo wasn’t succeeding and was dragging his parents down in the process.
    My kids aren’t old enough to have dilemmas like this yet, so my analogy might not fit perfectly. I think if I saw my kid doing something harmful to himself and/or me I would attempt to stop him. If my kid was trying to touch a hot stove, I’d yell, “No!” And if he tried again, I’d swat his hand and yell “No” again. Better a small sting than a burn. I’d probably even risk getting myself burned—ONCE—to snatch his hand away, but at that point there would be some severe discipline applied. If he kept trying and trying, he’d probably eventually burn himself. But I would not repeatedly burn myself to stop him. Sometimes people need a little burn to learn, “Don’t touch hot stoves!”
    These well-meaning people–each time they saw their son about to get burned in business–kept covering the burner with their finances instead of letting sonny-boy feel the burn himself. Perhaps if he’d gotten burned a little bit once, he’d have realized that he needed to put his idea on hold until he’d learned the necessary skills to be a successful business owner. Unfortunately, the result is that now none of them has financial security.

  14. My mother would have given the shirt off her back, emptied her savings and mortgaged her house to send me to college. She didn’t because I applied for scholarships, student loans and worked during college.

    She did buy me a car (she doesn’t drive) with much of her savings. Fast forward 15 years and now I’m paying for her groceries and utilities. The fact is, we both sacrifice for each other and there isn’t even a question of what money is who’s.

    My cousin had similar parents. He did the opposite. He drained bank accounts and no amount of money was ever enough for him.

    I don’t know why we turned out so differently when we’re first cousins. I guess at some point you have to understand a person’s character intellect.

    If you can’t envision your own child helping you when/if you need it, then you probably shouldn’t give money to them.

  15. Why do people do this? I don’t understand why my mother (79) paid for my brothers’(48&58) kids to go to private school and now is still paying for their medicine and housing. When “the boys” make good money- they spend it on wonderfully fun stuff while I(52) continue to go to work.
    These two MEN never learned! What will happen when she dies? Is it the “girl’s turn” to take over then?

  16. Some families have designated givers and designated takers. If you train a child to be a designated taker by giving him (or her) all the benefits of being a loving, giving, sharing, considerate person without requiring the child to actually do those things, eventually you’ll train the child to believe that “love” is a one-way street.

    Families like these collapse like Communist economies, and for the same reasons. Everyone gives according to their means, but receives according to their needs. This means the givers eventually burn out, but the takers never learn that there’s a relationship between what they do and what happens to them. Especially if other family members start punishing them for being takers, or if people outside the family such as teachers or employers don’t feed their growing senses of entitlement.

    It takes decades to create the kind of “child” who will knowingly exhaust someone else’s financial resources.

  17. This is an interesting post and true the parents are to blame for their financial undoing. However, what do you think about kids saying “no” to their parents? I kinda went through something similar to this. My parents wanted a bigger (cheaper) house because their current house was underwater. They made a lot of bad financial decisions that led them in that situation so I said no. They weren’t in danger of foreclosure as far as I know so I told them that I had my own family to take care of and that was that. To this day, my parents still think of me as a scrooge. Was I wrong?

  18. Bennett said:

    “If one of my boys asked for money to help with a serious problem, I would give him the money if it was the last dime I had access to.”

    Forgive me for being skeptical of a Finance Writer who claims that, but also claimed:

    “I put the boys’ college fund at risk by quitting the higher-paying corporate job. My hope is that I will make up for that by providing them the excitement about work that will come from watching a dad that truly loves his job go about his daily activities.”

    So have you established and funded a college account for your two boys, and are you committed to funding it? With today’s state-run plans, there is really almost no excuse not to, IMHO.

  19. Bennett extends his thinking on having the boys fend for themselves in life:

    “There is obviously nothing “stingy” about parents who do not pay for a child’s college education because they cannot afford to do so.

    There are at least three categories: (1) expenses that cover the basic costs of living–food, shelter, health insurance; (2) expenses aimed at enhancing the potential for future growth–education, fitness-related expenses, braces for one’s teeth; and (3) expenses aimed at providing for a feeling of luxury–vacations, high-fashion clothing, big-screen televisions.

    I will cover a good portion of the college expenses of my two boys if I am able to do so without depriving myself of money needed to cover my own basic costs of living both pre-retirement and during retirement. Money spent providing for my boys’ college expenses falls into the second category; these are expenses aimed at enhancing the potential for my family’s future growth.

    I will aim to cover my boys’ college costs before covering the costs of luxuries for myself.”
    http://www.passionsaving.com/family-and-money.html

    I wonder if Rob considers his own ‘basic costs’ to include the many PR firms, self-publishing fees, printing costs, book doctors, pay-per quote blurb factories, hosting and programing and website maintenance fees, etc that he expends household funds on in an effort to fashion himself as some sort of financial guru.

    Not to mention funding the lawsuits he is currently threatening to those who critique him.

    Given that he often says he cannot afford to even take the boys to Disney one time, I hope they each develop a significant skill that makes them worthy of a scholarship, because that would appear IMHO, to be the only way they will see a higher education. Rob, on the other hand, had parents who paid for his undergraduate and (non-practicing) law degrees.

  20. This man was not a child…to me there is a significant difference. I am sad that he thought it was OK to ask for $50K a month to keep his business afloat and I can almost guarantee you, he is not feeling any pinch from the business failing while his parents are losing everything. Too sad…

    They felt they could afford to help him but the effort should have been memorialized by an attorney with the doors to the bank shut when the business was failing. Throwing good money after bad is not the way to make a bad investment turn around.

    I come from a different mindset, it would never occur to my siblings or me to bankrupt our parents. We were taught early on that they just did not have the means to help us but they gave us the tools for success by being loving parents who valued education (not necessarily college), a strong work ethic (a sick day? what’s that?), and to value each other more than money and things.

    I wish these parents well.

  21. I’m very much with Andrea, although since I’ve been thinking a lot about this very sad story something else has crossed my mind.

    I’m not 100% sure where the initiative for the repeated gifts came from. It could have come from the “child” who asked for money even though his parents were struggling and who lacked the skill to know when to fish or cut bait. Or it could have come from the parents, who may have presented the money as a “gift” or even pressured the “child” to take it.

    There are families where the designated givers (generally parents) actually push gifts on recipients and use emotional blackmail to force the recipients to take them. The recipients are often unaware of the financial impact on the givers. Even when they are aware, the recipients have usually been conditioned to accept gifts because of years of having done so. Years of what Stanley and Danko would call “economic outpatient care” have generally destroyed whatever money management skills the recipients originally had, and enhanced both the need and the expectation of the recipients to the point where they have to choose between letting the donors bleed themselves, or changing their own financial behavior.

    Unfortunately, there’s a difference between receiving crisis aid in an unforeseeable catastrophic emergency (fire and illness come to mind) and receiving regular financial “help” or bouncing from one crisis to another. The former does not necessarily cause or enable financial irresponsibility. The latter will. It postpones the moment of reckoning at which the “gift” recipient realizes the situation is unsustainable and decides to do something else.

  22. You can make a strong argument that Larry and Abby are to blame here. I feel harsh saying that, because as the parent of a two-year-old girl, I can definitely understand the inclination to support a child. But at some point, supporting a problematic child becomes enabling. Sometimes, kids need to fall to learn.

    I would eat nails for my daughter and go for a swim in Lake Michigan today (it’s currently 24 degrees in Chicago). But what lesson did Larry and Abby teach Pat? “Go ahead and try something that you’re not qualified for — if you don’t succeed, someone will bail you out.”

    Discretion is the better part of valor, and at some point they needed to put their own needs first. It’s a sad story, and I wish them the best.

  23. “I put the boys’ college fund at risk by quitting the higher-paying corporate job. My hope is that I will make up for that by providing them the excitement about work that will come from watching a dad that truly loves his job go about his daily activities.”

    I stand by those words, Simon.

    If I had stayed at my safe corporate job (where I did precisely zero meaningful work but earned a big paycheck for doing it), my boys’ college fund would have been assured. But what sort of lesson would they have learned about what matters in life? It’s not only security that matters in this life, in my view. That’s not the lesson I want to pass along to them by my example.

    That said, if they need help getting started in life, and I am able to help by making some financial sacrifice, I will be doing it. My parents did this for me and I believe that I should be passing the favor along to the next generation.

    My hope (and expectation) is that my web site will be a huge success and that the boys will end up in a better place than the one in which they would have ended up had I stayed at the safe but boring corporate job. But none of us can see into the future, can we? That’s what makes these questions hard ones. That’s what makes all of life’s great questions hard ones.

    If we act in love (the real kind, not the sentimental kind), we are doing the best we can, in my assessment. I don’t say that I always succeed at doing this. I say that it is my aim to do this. And that I often worry that perhaps I am making a bad choice. I look at my boys’ faces when they go to bed at night and I feel love for them and I worry that I am not doing enough (or that I am doing too much).

    Rob

  24. Given that he often says he cannot afford to even take the boys to Disney one time

    I am the person who discovered the analytical errors in the Old School Safe Withdrawal Rate studies and reported on them on internet discussion boards and blogs. That’s why you see these words appearing here.

    My wife and I have taken the two boys on a one-week beach vacation every years of their lives. This year it was two weeks. No, I cannot afford Disney World today and it was my decision to leave a non-fulfilling but financially rewarding corporate job that is responsible for this.

    I don’t believe that that decision will end up hurting the boys. But of course I cannot say with certainty. All that I can do is pray that I end up being right about that one. I of course love my boys. But I also love the thousands of people who I have been able to help with the work that I have done at my web site. And I believe that it teaches my boys an important lesson for them to see that it is not all about the money (although of course financial considerations are indeed important).

    By the way, it was my concern that my decision to leave the corporate job not hurt my boys (or my wife) that was the cause of my discovery of the errors in the retirement studies. I didn’t want my plan to fail. So, before handing in my resignation, I checked those studies carefully. That’s how I came to read John Bogle’s book and learn about the errors in them.

    Rob

  25. Saying no to your children can be very hard. We had a situation recently with our college aged daughter where we only had X amount and she could choose between 2 situations. Man, was she mad! She wanted both, but we didn’t have both to give. Luckily we stuck to our guns, she had to make the hard decision, and we didn’t cave.

    Believe me, we wanted to give her both but in doing so would have added to our debt. Not smart.

  26. I have to agree. Larry and Abby are at fault here. I think, by and large, the parents who responded here are missing the point.

    Yeah, it’s understandable that they’d want to help their son in anyway way they could. But that’s like saying it’s okay to keep helping an addict. At some point, you have to draw the line. I could understand spending a lot of your savings in the vain hope that your son would get a clue. (Though why they didn’t pay some business consultants rather than give him the money, I don’t know.)

    But once you start dipping into fixed assets like rental homes… That’s when you have to realize that, as much as it hurts you, you need to cut the kid off. Look at it this way: It was obvious that he was running the biz into the ground. So they should have made sure they were well-situated enough to provide him with a place to live, since clearly he’d end up back with them when it all officially fell apart.

    Granted, I feel especially frustrated about situations like these because my in-laws just keep taking my brother-in-law back time and time again. Even though my FIL is out of work and my MIL is chronically ill and living on disability. And they owe money to the IRS and don’t own their house. And my BIL is a serial dater and each of his girlfriends pretty much moves in. Which means both of them have friends over who eat up my in-laws’ food. And on the rare occasions my BIL does work, his parents don’t see a dime.

    I know that I can’t understand yet what parental love is like. But I have learned the hard way (and many times over) that you have to put the proverbial oxygen mask on yourself, before you help others. Otherwise, you’re no use to anyone.

  27. My husband’s mother did this. Throughout his entire teenage and adult life, up until a year or so ago, she gave him money whenever he wanted it. His two sisters were furious about it. I begged her to stop because it was harming our family. She told me it didn’t matter what I thought or said, that “he is my boy and I’ll give him what I want”.

    Fast forward 20 years. She has no savings, is 93 years old, in the beginnings of dementia, and basically lives on her small social security check and government help. My sister-in-law and I have to provide a great deal of her personal care because there is no money to hire additional outside help. We were able to get some assistance from the Office of the Aging, but not nearly enough.

    He took literally 10′s of thousands of dollars over the years and gambled most of it away. This was money his mother could have used now to pay for in-home care.

    Sadly, like Larry and Abby, she did this to herself. I (along with my sisters-in-law) tried to stop her and talk some sense into her, but it was pointless.

    The worst part is when she tells us over and over again about her “good boy” and how much she misses him, yet we are the ones doing all the work. (He’s a truck driver and on the road a lot, so she doesn’t see him as much as she sees us)

    Our daughter is in graduate school. I paid for part of her initial college education, and help her with a few small expenses, but that’s it. She is on her own and unless there is something life threatening involved, I’m not going to accumulate debt to bail her out.

    It’s too bad about Larry and Abby. What a hard lesson to learn so late in life.

  28. Its a sad story. The parents and child are BOTH to blame. It is irresponsible to lend/give virtually all your money to your child to sustain a failing business. Its irresponsible to take advantage of their generosity borrow/take money from your parents to support your failing business and leave them in financial ruin.

  29. Sounds like the son’s horrible business acumen was inherited from his parents, who *also* had no idea how to use or plan with their own money. They probably expected they’d be able to pull in that kind of money for years.

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