Dave Ramsey: How You Can Impart Money Lessons to Loved Ones
Finances and emotions often get messy, especially when the two get intertwined. If you're a kind, empathetic person, you might find yourself trying to help friends, family and even strangers at the expense of your own wealth.
That's the warning Dave Ramsey gives in an episode of "The Ramsey Show," his call-in program offering advice to people seeking guidance with their money. Several callers discussed situations where taking on other people's problems held back their own finances.
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The tough-talking guru of boomer finances said that if a loved one is taking advantage of your generosity, it be best for them to "experience some pain" to learn a lesson about personal responsibility.
Being a Parent Sometimes Requires Tough Love
For example, one mother discussed being a co-signer on her adult son's condo and she had been helping to pay the mortgage due to his job loss.
However, as Dave Ramsey and his co-host — mental expert Dr. John Delony — shared on the episode, continuing to pay the mortgage while the son went through this rough patch isn't necessarily good for either of them. The mother may be protecting her credit score by not letting her son default on the co-signed home, but at the same time, she's the one picking up the tab. Meanwhile, he's learning that she's there as his safety net during what Delony called "one of the hottest hiring markets in human history. He's chosen not to work."
The hosts discussed the wisdom of whether she should buy out the condo from her son to eliminate the risk of foreclosure and credit carnage. Ramsey said that instead of taking on her son's problem of paying the mortgage, letting him have to figure out how to come up with enough income or suffer the consequences of foreclosure could be worth it for both of them in the long run: She protects her finances, and he learns to fend for himself financially, rather than "playing chicken," as Delony put it.
A Stitch in Time Saves Nine
And in the future, avoiding these types of situations is often the way to go, rather than getting involved financially in ways that can affect your savings, credit and take up time and energy that could be going toward other wealth-building activities.
Keep in mind that life isn't as binary as saying you're either a generous person or Ebenezer Scrooge hoarding wealth for yourself. In scenarios like the mother paying her son's mortgage, taking on other people's problems can do a disservice to both of you. Resentment builds and you might hurt the financial futures of everyone involved.
Even if there's not necessarily any resentment, you still want to be careful about making too many sacrifices.
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For example, a Thrivent survey found that nearly half of parents reported having adult children move back in with them after having lived independently for a period, like for college. Of these parents, 38% said it affected long-term savings goals, such as for retirement.
It's tricky, because you might naturally be inclined to want to help loved ones. But there are ways to still provide some support without hurting yourself, like giving your adult children a place to live while asking them to cover all their other living expenses, including food. You're still ensuring their well-being by solving the huge obstacle of expensive housing, but they're also learning the financial responsibilities of adulthood.
You Can Still Use Wealth for Good
Being generous because you can afford it and it helps someone in a productive way looks different than getting stuck in other people's problems.
Imagine you've saved comfortably for retirement and you can afford to take your kids and grandkids on a luxury vacation. That's generally a nice experience that your family will savor memories from, and it doesn't hurt your future because you've already built a solid financial foundation.
Contrast that with having to forego vacations in retirement because you loaned your sibling $50,000 to start a business, because you felt bad that they were struggling to find funding. Then, the business goes bankrupt and you're left without that money. Meanwhile, your sibling doesn't necessarily learn as much of a lesson, because they didn't feel the pressure of having to meet the terms of a bank loan.
Instead, think about whether being generous lifts up that other person rather than enabling them to continue problematic behavior. Maybe being generous by paying for your kids' college tuition is reasonable, if you have the means to pay for school without any debt, because that sets them up to start adulthood without the weight of student loans. Yet it's not teaching them that you'll always clean up their messes, just that you want to help them get off to a good start.
In other words, there's a time for being generous in ways that are a net positive, but you don't want to let guilt guide your decision-making. In many cases, that ends up being a net negative all around, including for your net worth and relationships.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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