Why Economic Outpatient Care Does Not Work
The perils of subsidising your children
One of the recurring themes that comes up when I talk to parents is how to best help their children learn about money.
It is the role (and the burden) of parents who love their children more than anything to prepare children to be independent and self-supporting in a world that is indifferent to them. That is a tough gig.
It is simple (but not easy) to teach children about money management.
Sure, you can open up a junior ISA and buy them their first global equities tracker fund…but for them to get maximum educational value it’s best if you sit with them and do it together.
If you just do it by yourself so that the money arrives when they are 18 then what have they really learned other than FREE MONEY JUST ARRIVES AS IF BY MAGIC?
Make it real and make it visible for them. Show them the process!
Monkey see, monkey maybe do themselves later in life?
The best thing you can do for your children’s financial education costs nothing …and that is to role-model living within your means.
Once they reach the teenage years, children will usually tend to tune out the lectures from Dad and Mum.
On some level, all children are students of the behavioural school of psychology. They know that talk is cheap. Every child knows on some level that money talks and bullshit walks.
Children may well ignore what you tell them about money. But they won’t ignore your actions, your example and your role-modelling.
You are the biggest influence on your children’s money blueprint: their operating system, their values and their beliefs around money.
Children have two ways of reacting to their parent’s example of how to treat money. In most cases they (mostly unconsciously) repeat patterns of their parent’s behaviour (and often make the same mistakes and re-create echoes of past traumas).
But in a small minority of cases, children who are pissed off with their parents vow to do everything the opposite of how their parents did it(!).
Obviously we now live in a world where pretty much everything in the media is fake, lame and soft-focussed.
I don’t think its too much of an exaggeration to say that the Big Tech / social media companies are out to get your children with their brainwashing and dopamine-frying devices.
Being a parent means learning to say no a million times. And then say it again. Parenting is a noble vocation but no one said it was gonna be easy.
Your children’s introduction to a hard budget constraint comes with pocket money. Pocket money is like the deals at LIDL: when it’s gone, it’s gone!
Bailouts are for investment bankers (2009 vintage joke) and other losers…not for your children.
Once they have spent their pocket money on sweets (or some crypto shitcoin) you must never crack. No means no.
Like I said, it is the role and the burden of parents who love their children to get them to the point where they are independent and self-supporting.
My contribution as Dad to three children (now all over 18) was to be prepared to play the role of Scrooge / pantomime villain / bank manager in the family.
I also played the role of recruitment agent, helping / encouraging each of my three children to get jobs working in our local pub as waiting staff / glass collectors / washers up. NOTHING teaches kids the value of money like a minimum wage job!
If there must be a bad guy, then I was prepared to play that role.
Some would say that I enjoyed that role a little too much.
For anyone interested in this subject, I highly recommend chapter 5 "Economic Outpatient Care" of the classic book The Millionaire Next Door
The short version is this: the more we subsidise children over 16, the more we skew / blunt their incentives and their understanding of how the world works.
Using a compelling mix of data and case studies, the authors show how feather-bedding your children will probably backfire and make both you AND the children poorer in future.
From Chapter 5 of The Millionaire Next Door
Economic Outpatient Care (EOC) refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren.
Many of todays distributors of EOC demonstrated significant skill at accumulating wealth earlier in their lives. They are generally frugal with regard to their own consumption and lifestyle. But some are not nearly as frugal when it comes to providing their children and grandchildren with “acts of kindness”.
These parents feel compelled, even obligated, to provide economic support for their adult children and their families.
What’s the result of this largesse?
Those parents who provide EOC have significantly less wealth…and in general, the more dollars adult children receive, the fewer they accumulate, whilst those who are given fewer dollars accumulate more. Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive.
If at this point you are feeling guilty and would like to argue about this, please email anyone but me.
If however you want help resolving family conflicts around money, then hit reply!
In my financial coaching, I am very happy to see couples together or in separate sessions. So if you are the financially aware one in your relationship, I am happy to talk both to you and / or your significant other. This is all covered by one subscription, there’s no need for both of you to pay.
I don’t mind whether you are fully aligned re financial issues or whether you need help to resolve your differences!
I am also happy to talk on Zoom to adult (i.e >16) children of clients…helpful for those that want someone else to try to talk some sense into them!
Love to everyone
Barney
If you’d like to discuss career coaching or financial coaching, please hit reply or set up an introductory call with me here.