“For every financially dependent child there is an equally responsible financial-enabling parent,” observe Bradley Klontz and Anthony Canale in the Journal of Financial Planning. That’s not good: financially dependent adult children who continue to rely on their parents well into their 30s, 40s, and 50s can be a significant threat to the financial health of financial planning clients, the authors say.

Sure, the giving of money is always done with the intention to help.  Still, it can be quite damaging, and, at its worst, financial enabling can feed a gambling or drug habit; at best, it can lead to a life of amotivation, the two financial planners remark.

Financial dependence can cause:

  • A lack of creativity, drive, motivation and passion
  • Enables a dependent adult who pursues multiple degrees in a variety of fields without ever settling on a career
  • Depression and listlessness in the child due to lack of job related interactions, challenges, and feedback mechanisms

How can the enabler break the cycle?

  • Set a date at which time the financial aid will be stopped
  • Offer to pay for psychotherapy, career counseling, or coaching
  • Develop a support system for keeping the new plan in place

The same issue of unhealthy financial dependence applies to estate planning, point out John Horn and Dera Johnsen-Tracy in the AAII Journal.“ Many of us have loved ones who have repeatedly demonstrated that they will never be financially responsible.” Clearly, naming this type of individual as a direct beneficiary may serve only to contribute to a gambling or drug addiction, or result in assets being claimed by creditors in a bankruptcy or income tax proceeding,”

Often, it is better to create a lifetime “spendthrift trust” to hold the inheritance for the benefit of that individual for his or her lifetime while protecting the assets from creditors.
At Geyer & Associates, we often recommend inserting a spendthrift clause in a trust, in order to prevent the creditors of any beneficiary from touching the assets so long as those assets remain in the trust. That restriction remains in effect even in if and when your beneficiary declares bankruptcy.

In financial and estate planning – helping can sometimes hurt!
– by Ronnie of the Rebecca W. Geyer blog team