Want to be financially independent? Don’t take a cent from your parents

We all remember that feeling we got when we received pocket money as children. The anticipation of getting something for nothing, followed by the excitement thinking up ways to spend the money and a sense of achievement when we bought that special something that we could show off to our friends. Perhaps you didn't always spend it immediately and instead saved it up for something expensive that you wanted more than the immediate gratification of buying something today.

As you grew up, the pocket money may have increased and subsequently your 'toys' also became more expensive. Then, a few years later, one of two things happened: your pocket money stopped or your pocket money continued. With the former, where you stopped receiving pocket money, you soon realized that there were a lot of things you still wanted to do or buy that cost money. So, you signed up for part-time work to earn your own money for the first time.

No one owes you anything, not even your parents.

I’ve always kept my stance on rejecting financial help from my parents. I’ve seen others older and younger than me who actively refused help from their parents and others who struggle to sever the financial 'umbilical' cord permanently. Money from your parents feels comfortable and familiar, but what does accepting their help really cost you? Is it really a bad idea to take money from your parents?

Research by Thomas J. Stanley and William D. Danko, authors of one of the top 10 personal finance books of all time, The Millionaire Next Door, found that those who accept regular cash gifts from their parents are less financially well-off in the long run. With the extra income that some adults receive from their parents, it seems odd that they aren’t better off financially than those who turn down or are never offered gifts of money from their parents. So, why is accepting money from your parents damaging your wealth?

Stanley and Danko coined the term economic outpatient care (EOC) to describe the substantial economic gifts and "acts of kindness" some parents give their adult children and grandchildren. Parents can often feel obligated to provide certain forms of economic support for their adult children and their families. With the intention that the money will help their adult children and families, the effect is the opposite.

Not needing or wanting money from my family is so integral to my sense of freedom.

Stanley and Danko found that "the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more." The research was based on surveys of the adult children of the affluent and also found that 46% of the affluent in America give at least $15,000 worth of EOC annually to their adult children and/or grandchildren. As adult children get older, the incidence of receiving declines, with just one in five adult children in their mid-forties to mid-fifties receiving such gifts.

Interestingly, Stanley and Danko also discovered a difference in the amount that gift givers reportedly gave and what recipients reported they were given. The gift givers reported giving more than the recipients reported they received. Do recipients downplay what they receive because they genuinely don't know or because they're ashamed? Either way, this finding doesn't reflect positively on the recipient. They are either unaware of just how much money they're accepting (and are therefore less likely to have a real picture of the state of their personal finances) or they don't feel good about accepting money and so downplay the involvement of their parents/grandparents in supporting their current lifestyle, instead of being creative and downgrading their lifestyle so that it is more affordable.

What are the other reasons for turning down your parents' money?

  • Unspoken strings attached. Parents always mean well but once they start giving you money it's rarely going to be the last you'll hear of it. Why shouldn't they scrutinize how you spend money especially when it's coming from them? Do you really want your relationship with your parents to turn into a business transaction? Will you feel guilty turning down invitations to visit them? It's never a matter of receiving money without strings attached. At some point you'll have to give to get.

  • Self-sufficiency. Not needing or wanting money from my family is so integral to my sense of freedom. I was responsible for all of my financial decisions and could hold just myself accountable for any poor actions. Knowing I had no one to fall back on meant that being self-sufficient was the only path available. As a grown up, I learnt that I needed to live within my means to provide for myself without the help of my parents. Accepting money for an emergency is understandable. Accepting money for something you can't afford on your own and unnecessary perpetuates poor financial choices.

  • Entitlement mentality. If you want to buy something that you cannot afford on your own but which you buy with the help of your parents (e.g. a car that's more expensive because of features that you do not need) sets up a bad precedent for future purchases, and you could develop a feeling of entitlement to buy things you can't actually afford. Avoid this feeling by living within your means. When you have to rely on yourself for everything, you tend to work harder and smarter for what you really want instead of relying on the bank of Mom and Dad. Learn to take care of yourself. No one owes you anything, not even your parents.

Is it ever acceptable to take cash gifts from you family?

You will never be able to make your own choices and decisions when someone else is bankrolling you. Resist the temptation to make your life easier by accepting cash gifts from your family especially if it encourages you to live beyond your means. There are exceptions to the rule and it's essential to make each financial decision based on your current situation. Accepting the occasional gift for a birthday or for Christmas can be a more helpful gift than a material item that you don't need or want, but limit your acceptance of gifts and you'll learn more quickly how to support your lifestyle. When you provide for yourself, you will cut your expenses, live within your means and figure out how to earn more money and you'll feel a greater sense of achievement.