Wise Bread Picks
A while back I finished reading The Millionaire Next Door and was really impressed with the data results, though the data is old by today's standards, it is still valid; most millionaires are frugal savers who live modestly. The chapter that had the most impact one me, however, was the chapter entitled "Economic Outpatient Care." The term is basically defined as people who are being financially supplemented by their parents. This chapter also went on to define Economic Inpatient Care, which means the adult is not only receiving financial aid from their parents, but lives in their parents' home as well. As a woman who has been financially independent since the age of 18, this information confirmed what I've always believed: people who are given too much financial aid from parents or relatives are less likely of being able to reach financial independence.
Economic Outpatient Care Gone Terribly Awry
I know a woman in her mid-60's, we'll call her Leslie*, who has received outpatient care supplements all her life. While married to a well-to-do television director, she played the stay-at-home-stepmom and dabbled in interior design. Her own parents were frugal business owners who happened to be financially savvy and established a trust fund for all three of their daughters, Leslie being one of them.
Leslie's marriage to the director ended after 20 years and she found herself lost amid the world of computers, technology, and being single once again. However, the spending habits she had acquired during her marriage continue to this day — lavish lotions, extravagant purchases, trips out of the country. Her parents supplemented Leslie's lifestyle sporadically throughout her life. After her divorce, and her mother's death, Leslie began to rely on monthly stipends from the trust fund. She was able to justify these payments while helping her ailing father who was suffering from Alzheimer's. When her father died, Leslie had spent so much of her parents' trust fund, she ended up owing her sister thousands of dollars. She not only had spent her portion of the fund, she had also dipped into her sister's as well. (The third sister had settled for a lump sum out of court, but that's a whole other saga.)
Leslie is now spending the remaining portion of her savings trying to figure out what went wrong. She is deep in credit card debt and is living off residual income that is well below what she is accustomed to. Unfortunately, she is an extreme example of what happens when parents bail out their children time and time again; they are unable to modify their lifestyles and support themselves, often making terrible financial decisions along the way.
The Inpatient Is Ready to Be Discharged
Learning through other people's mistakes is often a painful example of what not to do. A very close relative of mine, Bill*, is 30-years-old and lives at home with his parents. Since high school, he has left home twice, only to be "returned" after a few months of living on his own. Bill's parents would rush to his rescue at the slightest possibility of failure and bring him home. After years of trade school training and failed attempts at multiple industry jobs, he is once again unemployed. Bill is living like he did when he was a teenager; his mother cooks for him, does his laundry, allows him to sleep late, and only ever so often razzes him about getting a job. But Bill is not a teenager, he's an adult. Bill's problem is there is no motivation to move out and change his predicament. Why should there be when everything is done for him? Bill's parents are very frugal people and financially savvy, yet can't see that their continued help has hindered Bill's potential of ever becoming financially independent.
Solutions for the "Patient"
The patients will need some guidance to escape either one of these scenarios, which are both detrimental to their financial well-being. Below are a few tips that could help them escape the cycle of financial dependence:
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- Create a budget. There are so many useful and free programs today to help create a monthly budget of regular expenses. But a great way to create one is by using a spreadsheet. List typical monthly expenses, such as rent, utilities, phone bills, groceries, auto expenses, etc. and how much you think you spend on each category. Looking at the list on paper, you might find some areas where you could save money.
- Track your monthly spending. To verify your budget is correct, keep track of what money is being spent. Whether you decide to save the receipt of every purchase and keep them in labeled envelopes, or sign up for an online program that helps keep track of your expenditures, both methods will allow you to see where your money is going.
- Increase your income. Side jobs, a second job, selling things on eBay or Craigslist, are all good ways to increase your income and move away from any monetary supplements you might be receiving.
- Be diligent. Get down to the basics. You might want that cashmere sweater or a trip to Cancun, but these are things that you may not be able to afford at the moment. Instead of looking at wants, whittle your expenses down to your needs for a set amount of time, say six months. After six months, you might find you've saved enough through living frugally to purchase a want or take a trip with your own money instead of your parents' money.
Solutions for the Parent
It's understandable that parents want what's best for their children and want their children to be happy. However, sometimes children, especially adult children, need to solve problems on their own. If a young adult is constantly being bailed out financially, they learn to accept that the safety net is always there. Instead of cutting back on expenses and finding ways to generate additional income, they begin to rely on that financial supplement. Some tips to help parents foster a sense of financial independence:
- Help the patient come up with a budget. Many of these patients may have no trouble asking for additional funds, but might find it hard to ask for help with devising a budget and sharing their personal finance.
- Wean the patient off the supplements. If supplements are being sent to the patients every month, it's time to reduce them. It might be easier to give the patient a warning, letting them know you can no longer support their lifestyle. Then, slowly reduce the supplements until they are supplement free.
- Give the patient a deadline. If the patient is an "inpatient" and living rent-free, it's time to get tough. Give the patient a deadline to get a job, pay a minimum amount of rent, pay a small portion toward utilities. If the patient has a job, set a deadline to move out. Becoming financially independent often revolves around becoming an independent adult.
- Quit rescuing them every time they ask. Allowing the patients to come up with their own solutions to their own problems allows them to take charge of their lives. People learn lessons best through hands-on scenarios. If parents are constantly solving their children's problems for them, the children quickly learn to rely completely on the parents and are at a loss as to how to solve a problem.
Economic Inpatient and Outpatient Care is a perfectly coined phrase for a position that no one should envy. These patients need guidance to escape from their cycle of dependence. Once the cycle is broken, all participants will find that independence is something that can't be bought, only earned.
*The names of the people mentioned have been changed to protect identities.
