Economic Outpatient Care: hindering an adult child or grandchild's financial maturity by fostering a dependency on handouts.

This term was coined in chapter five of The Millionaire Next Door by Thomas J. Stanley and William D. Danko. In the studies of millionaires done in the book, Stanley and Danko found that the children of those studied tended to have a lower net worth if the parents regularly gave them monetary gifts. Giving the adult children and grandchildren money tended to enable poor financial management and tended to foster resentment in the parents. The recipients of the Economic Outpatient Care tended to spend more than they could afford to under the assumption that the handouts would continue indefinitely. They also often greatly underestimated the exact amount of money their parents had actually given them.

"Conversely, what is the effect of cash gifts that are knowingly earmarked for consumption and the propping up of a certain lifestyle? We find that giving such gifts is the single most significant factor that explains lack of productivity among the adult children of the affluent." [143, emphasis theirs]

The most common form of EOC these adult children received was Forgiveness Loans: money that was "loaned" to the children but was never repaid. 61% of affluent parents studied admitted to giving this form of EOC. The secondmost common form (59%), was helping the children buy their first home. Third place (43%) went to funding the grandchildrens' private school tuitions, followed closely in fourth place (32%) by funding childrens' graduate school tuitions. [150]


"In fact, about 2 out of every 3 adult children who receive significant cash gifts from their parents view themselves as members of the 'I did it on my own' club. We are amazed when people tell us in interviews, 'We earned every dollar we have.'" [156]

Stanley and Danko found that those who recieved EOC tended to save less, carry more credit card debt, invest less, and often viewed their parents' wealth as being their wealth as well.

The authors also gave a list of "Ten Rules for Affluent Parents and Productive Children." Some of these rules can be paraphrased as follows:

  • Teach your children frugality and financial responsibility.
  • Praise your children's accomplishments, not their status symbols.
  • Don't talk about your wealth or promise to leave a large inheritance.
  • Don't bail adult children out of their own responsibilities.
  • Don't offer money in exchange for compliance. [203-208]


Sources:
Stanley, Thomas J., and William D. Danko. The Millionaire Next Door. 1996. All page numbers listed above are from ISBN #0671775308
http://moneycentral.msn.com/content/CollegeandFamily/Raisekids/P98891.asp
http://www.retireearlyhomepage.com/millbook.html
http://www.ceb-associates.com/millionaire_notes.html (complete list of 10 rules here)
http://formeraboutguides.com/investingcanada/library/weekly/1998/aa101298.htm

Log in or register to write something here or to contact authors.