Failure to Launch: What’s a Parent to Do?

Popular TV shows like Schitt’s Creek and Arrested Development feature children who cannot function without the financial support of their affluent families. Caricatures of these spoiled children are played for laughs. I find that many clients with investable wealth of anywhere between $1 – $5 million confide how difficult it is to raise well-rounded and ambitious children. They say that their children expect or demand things that would have been unthinkable to children a generation ago.

How can we incentivize our children?

Here are some examples:

• Bill and Melinda Gates have pledged to distribute a “miniscule portion” of their wealth to their three children in order to force them to “find their own way.”
• Warren Buffett has provided his grandchildren with a college education and related expenses but no other entitlements. “A very rich person,” he is quoted as saying, “should leave his kids enough to do anything, but not enough to do nothing.”
• Kevin O’Leary has said that he intends to make sure his children are educated and then kick them out of the nest. “If you don’t start out your life with the fear of not being able to feed yourself and your family, then what motivates you to get a job?”

Here are some of my own strategies to help parents encourage their children to become financially and socially responsible:

1. There is nothing wrong with child labour. Paying your children for chores teaches them that the world rewards effort. It also helps children to learn to manage small amounts of money and introduces them to budgeting.
2. Let them pay rent! Many young adults are having trouble gaining employment sufficient enough to allow them to pay market rates for accommodation, so they’re returning home. I encourage parents to charge their adult children rent to teach them that not all of their income is discretionary. Even if you do not need their rent money to cover your expenses, save it on their behalf and return it as a gift when they purchase their first home.
3. A weak job market doesn’t have to mean that your children have to stay on your payroll. Try putting them on a stipend equivalent to a retiree’s pension. For example, Old Age Security currently pays $587 per month. This should incentivize them to, not only get a job and improve their standard of living but teach them that their future retirement pensions are unlikely to be sufficient.
4. Cover the costs of a first degree only. Some parents assume they must cover the costs of multiple degrees, including room and board, and beyond until their kids’ “launch”. With escalating education costs, especially for professional programs, consider having your kids take out student loans, as well as apply for grants to pay for their advanced degrees. Depending on the degree and how quickly their salary ramps up, they should be able to repay their loans in short order. In the meantime, your own money is growing and providing lifestyle benefits.