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The Entitlement Trap

 
 

As a parent or grandparent we want the best for our children and grandchildren. We are willing to make scarifies for them to have a better life. This starts early in life and continues into early adulthood and sometimes beyond.


People who have accumulated wealth may want to pass this stored wealth onto their kids or grandkids to make their lives better.


These are honorable things to do. How they are done will determine if the result is empowering or disabling. It also determines how long the money lasts after it is given. How do you measure if what you are doing is helping or making things worse?


Once parents have enough income to cover the basics of life, shelter, food and the necessities then they are able to give discretionary funds and goods to their children. The Entitlement Trap is not just an affliction of the wealthy it is in also a middle class phenomenon. Cell phone, laptops, play stations, designer clothes,  sneakers, the latest smart phone, games and so forth are part of daily school life in the developed world. How this is handled and the expectations that come along with providing these things determines if giving these things are empowering or disabling.


Too often today financial support and inheritance is given without consideration of preparing the receiver to effectively manage this windfall. About 20% of the receivers have a well developed financial competence, the other 80% do not. Parental financial support can and often does become a life long fiscal competence handicap.


What typically happens when you give a financial gift to a young adult? What are the chances this windfall will be consumed and will disappear in short order? Statistics show that the chances are very good that any sudden financial windfall will be consumed and disappear in short order. Unfortunately this is true for most adults as well.


The Entitlement Trap is an incomplete exchange where the receiver gets financial help without completing an exchange for what they receive. Once a child reaches early adulthood this incomplete exchange becomes debilitating and disabling. The seeds of The Entitlement Trap are sown in a child’s relationship with their parents and money early in life, well ahead of early adulthood.


I grew up living in The Entitlement Trap so I know first hand what it extracts as it gives. I felt emotional pain around how financial assistance was managed by my parents. It made me want to understand why something so good on its surface (financial help from my parents) had been so debilitating to me emotionally. The more I opened my eyes to what was going on the bigger the problem revealed itself to be. It was not just my problem, but a universal problem I labeled it The Entitlement Trap.


I wanted a healthy supportive relationship with my parents and my family. I wanted to prosper from the financial wealth my grand father had accumulated. I wanted to break the curse that came with the families prior financial success.  I wanted to succeed financially myself without creating this same outcome. I was one of the 20% who struggle to learn how to succeed with finances and financial support.


I wanted our family financial support to be a blessing. I was doing well in life and did not want to repeat this pattern with my children. I believed in my essence that having excess income or stored wealth did not have to end up being a family curse. I spent years setting out to solve this puzzle. My goal - to find out how to make family financial assistance be empowering rather than disabling?


Along the way I discovered something I was not expecting - The Entitlement Trap is not an affliction of the wealthy, it also impacts the middle class. The mere existence of this crutch at a crucial time in a young person’s life can leave them with under developed skills around money. I also learned that The Entitlement Trap is not just found today in North America, it is in fact a world wide phenomenon.


There is another dimension to The Entitlement Trap and that is the expectations of the beneficiaries to live a certain lifestyle they grew up with.


The cure for The Entitlement Trap is simple to describe and much more difficult to achieve as it is involves the habits of both the parent and the child driven by a common flawed belief. That flawed belief is that the family wealth or family excess income is there to give me a better life today.


To solve The Entitlement Trap it is essential your kids have good money habits and skills. Most important it is essential they understand that the purpose of inheritance or sudden wealth is to provide a lifetime of income not a sudden leap in lifestyle. This is the essence of the solution to The Entitlement Trap. Sounds so simple doesn’t it? Then why is it 3 out of 4 people who inherit money, destroy that wealth in one generation (25 years) - and often in only 10 years?


It should be a universal desire to empower your kids to have good money skills and a self reliant attitude. Unfortunately this is not well understood by most people even the 1% of the 1%. Who is preparing them to have these skills? Do they get this by chance or by design? When will they get the skills to become financially self reliant? Where do they get this education. It is currently not taught in school. This is something you learn at home or on your own because you want to know how to do this.


What is the chance then that a ump sum inheritance will last more than 10 years?


What is the chance a trust will not succumb to the pressures of the income beneficiary and either sell of losers at the wrong time or distribute principal to help out a financially strapped income beneficiary?


The successful condition for receiving financial support is that: it be used to earn a lifetime of income not for lifestyle. It must be understood by both the parent and the child that this element is essential for successful financial support or the successful use of sudden wealth or an inheritance. This is the answer. How to get there is a little more complicated, but first you need to become clear this is the outcome that must be accomplished. This understanding is need by both the giver and the receiver.


We all understand that parental support for college education is money being used to earn a lifetime of income. However even this support can be used improperly. College support improperly provided sets up entitlement.


College support done correctly creates and exchange, an earning if you will of the support being provided. This does two important things. First, the receiver of the support feels whole and complete about receiving the support as they have done their part to get this support. Second, it teaches the receiver responsibility and consequence for the exchange.


To facilitate this outcome I have create a set of written rules for college support. The basis of these rules is that financial support is not to be wasted on a good time in college before having to get serious in life and join the workforce. My setup is simple, fail to do what is required of you in the exchange and your benefits are taken away. The consequence is essential, for without it there is no exchange and the receiver then is entitled. This by itself does not create a learning for financial responsibility, but it does empower rather than entitle the student.


One caveat - the cure seems simple - it is! However, the journey there will be difficult. It is like crossing a ravine, you can see the other side very clearly, and it is oh so close, but to get there you must go through a challenging journey down and around. This journey will take much more time than you imagined and be filled with challenges and setbacks. It will be much easier to take the short cut than to go forward in the correct and more difficult path. In the end the journey and arrival will reward you beyond your expectations.

Our Kids - We want the best for them

The Entitlement Trap is about how families deal with money in a way that creates dependent children. We explain how this trap is created and how to develop financially empowered children