The recession has caused many working class families to deal with debt. While we are primarily focused on a parents ability to pay bills, we must not ignore the growing issue of young adults building up bad credit and large debts.
This is the first of six original essays based on my new book, Trust Me: Helping Our Young Adults Financially, which I hope will help parents talk to their children about finances and responsibility.
"Trust me," my younger son said--sincerely. Yet there were countless mishaps with money, related to disorganization and unreliability. The freelance web design job that was going to earn him $750 for ten hours’ work turned out to take sixty hours—and then weeks more before the clients finally paid. His optimistic rent check, mailed to a landlord in expectation of being able to beat it to the bank with a promised payment from a client, bounced. Cell phone and internet were cancelled at various times for nonpayment, leaving him—unless rescued hastily by his mother or myself—without a way for prospective clients to reach him. Time and again, we found reasons to keep the wolf from his door—usually extracting nominal assurances that he’d learned a valuable lesson. Our son’s "trust me" had long since acquired the opposite meaning to us: a red flag.
Finally, thanks to my better judgment and his better nature, Nick and I learned to trust each other. I insisted he use some tools to earn our trust, at the same time I earned his trust by proving to be a mentor who genuinely respected his independence.
Fortunately, as they go out into the world, the economic arena is where twenty-somethings are most open to learning from their parents, where they’re most likely to trust the parents’ good intentions, and where the parents still have powerful leverage.
Although there are prodigal youth in ancient literature—all the way back to the Bible—there’s a sense that this has become an epidemic in twenty-first century America. Social maturation is taking place six to eight years later than it did a generation ago. Yet those twenty-two-going-on-fifteen-year-olds are leaving school already deeply in debt, entering an economy that had a higher percentage of debt than at any time since the 1940s—even before the new global crisis hit us.
It was a personal crisis lasting about seven years for Nick and his mother and me, but we knew we weren’t alone as we heard similar woes from friends, relatives, and my clients.
A guitarist I’ll call Matt, for example, plays in two bands with paid gigs almost every weekend. He lives "within his means" only because his girlfriend, Monica, pays the rent with her full time job as a tattooist. At twenty-eight, it’s been a couple of years since Matt last asked his parents for money. They assume he’s forgotten the $3,000 they "loaned" him to move back to Chicago from L.A. What they can’t adjust to is this thirty-five-year-old woman, Monica. They could almost ignore the scary pictures on her arms and neck, but they can’t help feeling she enables Matt’s unrealistic view of himself as having an adult life. In fact, let’s be blunt: they think Monica is trying to rope Matt into a marriage he’s nowhere near ready for. They imagine Matt’s told her that he expects to inherit some money at thirty. This is true, but not enough to support him for life, much less support a family.
Matt’s parents are worrying about the wrong thing, imagining that Monica is the problem. His problem, like millions of other twenty-somethings, is his own slowness to face a realistic picture of his future based on his actual behavior, income, and total costs of living—including those costs other people are taking care of for him. Matt’s parents themselves enabled his illusion that he was supporting himself with his music, when they wrote off the $3,000 he had "borrowed" from them.
Here is the solution for young people who are out in the world, but not yet in command of the skills and habits they’ll need: you, as a parent, before cutting the financial umbilical cord, need to bring home the reality of where their assumptions, denial, and inattentiveness are leading them.
You need to simplify the tasks and teach money skills one step at a time, so the details of earning, banking, paying bills, keeping records and forecasting won’t seem so overwhelming. How can you do that when they’ve grown up (supposedly) and moved out? At this stage, the best answer often is the power of the purse. While still propping them up financially in one way or another, you can hold your son or daughter accountable by being absolutely clear (this means in writing) about what you don’t subsidize and what you will subsidize under certain conditions. Then, follow through on those conditions. When you make a decision to bail them out of a tight spot, it’s totally appropriate to place conditions on doing so. This is the Deal, with a capital D.
Clear, written, and enforceable
The first step is to be clear about what we’re willing to do for our young adult children. They need money, often in the form of a loan. And they need coaching. Under what conditions can they count on getting those from you? For how long? And what’s the shared goal? Your Deal describes a temporary step on the way toward responsible adulthood. There’s nothing wrong with subsidizing a young person. But if you’ve let that son or daughter manipulate you, or you nag and nothing changes, or you suspect you’re enabling a situation that isn’t good for them, then shame on you. Examine your Deal, fine-tune and clarify it.
Why not go on subsidizing them and keep your fingers crossed? They’re bound to grow up eventually, right? I wouldn’t count on it. Help them get on their feet, yes—but you need to see behavior change.
You can make their acceptance of mentoring/monitoring a condition for monetary help, as I did, just as a bank insists on oversight of a company’s books when working its way out of a loan default, and a government insists on oversight when bailing out a bank.
For example, Carlo is a carpenter, working full time toward his journeyman certificate. He rents a studio apartment and covers all his current living expenses. Over the previous year, he ran up a balance of nearly $6,000 on a high interest credit card. His parents generously offer to pay that off and allow him to pay them back at a very low interest rate, with no regularly required payments. In fact, they won’t expect him to begin repaying the loan for two years. They set four conditions: Carlo will use only a debit card; he won’t borrow from any other source; he’ll take a couple of online tutorials; and he’ll welcome his father’s mentoring and supervision of his bill paying. The Deal specifies that those conditions continue until Carlo achieves a positive cash flow and no bank penalties or late fees for a year. Finally, it spells out the goal they’re working toward: when Carlo, having met those criteria, will resume his own money management. Deal accepted, signed and dated by Dad and Carlo.
FATHER WILL: Pay off card, charge 2%, defer payments, mentor Carlo.
CARLO WILL: used debit card only, not borrow, accept mentoring, pass banking and credit tutorials.
COMPLETED WHEN: positive cash flow, no bank penalities for one year.
GOAL: Carlo takes over own bill paying.
Boundaries
Writing the Deal explicitly, perhaps in the form of a table like those above, is the best way to ensure that your young person can trust you to limit your meddling. You’re pledging to stay within the boundaries of the Deal, leaving them in charge of everything else in their life. For example, if you’re Carlo’s parent and you made that Deal, he’s free to spend his whole paycheck the day it clears. You won’t squawk if he buys an iPhone when he can’t cover his rent. Nor will you cover it for him.
If Carlo comes to you about the iPhone in advance, be sure to frame your advice in terms of "If I were you ...." Stress that it’s his decision and that you have no desire to control his life beyond what the two of you agreed in the Deal.
Within the Deal’s terms, however, be prepared to enforce consequences. If a Deal with your daughter specifies that she must pay her previous month’s bills (as you’ll confirm online) before you mail your contribution to her rent, and then she lets the due date pass, don’t nag. Just let the chips fall.
Responsible performance leads to freedom. The conditions of a Deal restrict the youth’s freedom in some way, in exchange for your support in money and/or time. And the Deal specifies what criteria they have to meet in order to get free of that restriction.
If your youth were independent financially, you wouldn’t be in the position to make a Deal. When they’re no longer under your roof, on what basis can you insist on anything? You’re not going to withdraw your love, ban them from visiting, or refuse to acknowledge their offspring as your grandchildren. So, like it or not, your only leverage does come down to their dependence on you for money or other material benefits.
The most difficult part of any family counselor’s job isn’t figuring out what’s at the root of a child’s problems. It’s convincing parents that the best thing they can do to help their child is to follow through with consequences when he or she tests the clear rules or contract they made. This is as true at twenty or thirty—with a dependent of any age—as it is with a ten-year-old.