Monday, May 1, 2017

How much money is too much money?

There's a huge difference between "income" and "wealth".   That's the main financial lessons I want my sons to understand right now.

Although I understand the spiritual dangers of having too much money (wealth), with my sons I've lately been dancing the Worry Dance about getting too much money (income).  J-son in particular has found himself persecuted by abundance lately, and the results aren't happy.

Even prudent people have anxiety over what to do with a windfall -- an unexpected tax return, an inheritance.  It's hard to be responsible with a lot of money at once: much, much  harder than being responsible with getting the same amount of money in small increments over the span of many years.  An extreme example that might be familiar would be winning the lottery, or perhaps the example of starring in the NFL. Many tales abound of people in these situations being showered briefly with more money than they know what to do with, and then (because they -- literally, honestly -- do not know what to do with so gosh-darned much money) going broke or even into debt in future years.

Another related example (one that's probably familiar to only the smaller group of personal finance aficionados) is the Millionaire Next Door  concept of "Economic Outpatient Care", the paradox that says that the more money that parents give to their children, the less wealth the children end up accumulating.  The authors of that iconic book argue that encouraging children to be entirely responsible for their own economic outlook leads to greater financial stability than jumping in to help fill gaps.  In particular, the authors give some evidence that giving your kids too much money sets them up for financial ruin.

So what does this all have to do with J-son?

A year or so ago, my husband signed up to start collecting Social Security.  Part of the reason that my guy said "yes" to the SS agent was that he was told our "special needs" children bring us extra money if he started collecting money right away.  The problem with what he was told is that the SS agent was not being entirely forthcoming: the money does not come to "us", and certainly does not come without strings.   We've since gotten dire warnings about the need to return any money that was not devoted to enhancing the lives of our darling adopted sons.  And once the boys turn 18, the money goes not to our checking accounts, but rather directly to our sons.

Last September, J-son turned 18.  And from that day until the day he turns 19-and-two-months, thanks to the Social Security Administration, our government sends him the princely sum of a-bit-more-than-$800 each month.  This money that J-son gets is a huge problem.

Why is it a problem? For one thing, J-son does not need this money.  He doesn't pay us rent or utilities; he doesn't buy groceries.  And if he moves out of our house, he stops getting the money.  This means that a kid with huge impulse-control problems has access to huge amounts of money exactly when he does not need the money.  And once he turns 19 and graduates from high school, he stops getting money.  We have a recipe for disaster on our hands: this money totally gives him everything he needs to develop overwhelming "needs" for money, without any of the structure for promoting financially responsible habits.

I admit that I freaked out when I realized that this situation would be coming down the road toward us.  My freaking resulted in a conversation between the three of us (me, my husband, and J-son) that resulted in agreement that looked like this:
J-son gets to "keep" (= spend) $80 per month, and we'll put the other money into two-year CDs that J-son will be able to access only after he graduates from high school and moves out of the house -- that is, when he really needs the money.
Here was the simple, two-step plan:
  1. Each month J-son gets his check, and deposits it into his credit union, putting $80 into checking and the rest into savings, and then somehow miraculously spends only the money from the checking account.
  2. My husband helps J-son use the money from the savings account to buy two-year CDs which not only yield higher interest rates, but also protect the money from impulse spending.
But an agreement, no matter how fervently agreed to, doesn't necessarily automatically become reality.  And in this case, reality and aspiration diverged pretty quickly.  CDs have minimum purchase prices, and user ID and passwords sometimes become an overwhelming challenge for some people, and so we ended up leaving some of the money in J-son's savings account for a month or so, waiting for the money to pile up into large enough accounts to sock it away.

But the money in the savings account calls to J-son like sirens called to Odysseus, and J-son's mom (me) just isn't as good at bondage as Odysseus's crews.  Also, J-son's dad isn't as anal as I am about getting money into high-yielding CDs as quickly as possible.  As a result, about two months ago, J-son went to a boxing match with his debit card. What started as the simple task of purchasing food for lunch turned into a shoe-buying spree, and $500 later, his savings account had been decimated.

J-son voluntarily gave up his ATM card after that . . . for two months.  But then he snuck into my sewing room to take it back, and he indulged himself in a 7-day, $290 spree of buying snacks for his buddies.   The snack spree came on top of a cell-phone data spree that had reduced his checking account from a high of $48.94 to its current sorry state of $0.88.

I don't have an elegant solution to this impulse-driven, money-fueled problem.  J-son is definitely learning a lot about impulse control (mostly, that he doesn't have it) and about the value of external control (he actually sort of likes it when I take his debit card away).  What he's not learning to do is to spend small amounts of money at a reasonable pace.  He still has no idea of how to budget.  We're going to work on that in the future, but that's an ongoing effort.

But the fact that he has more money than he needs doesn't help.  There really is such a thing as too much money, and that's what J-son has.    Poor, rich kid.


  1. Sounds like he needs to learn to budget for "rent", utilities, groceries, and other necessities of life. He can pay you those funds, you can sock them away for him as a nest egg and he won't have access to them. I believe the SS office has rules about accumulating money, as it shows that the recipient doesn't need the money to live on. Maybe the rules have changed since my younger sister was involved in it. Keep up the good work.

  2. Yeah, we really are going to have to think and rethink this. Right now we don't have things set up in a way that gives him enough control/consequences over how money enters and exits his credit union account for him to learn good lessons. (The whole "you are allowed to spend money out of your checking account but not out of your savings account" is one symptom of this).

    Time to put on our thinking caps and come up with something better.

  3. For some people, an envelope system helps curb spending- even if he doesn't have "needs" he might see the value in capping different categories of wants at a particular amount, and seeing the cash leaving might "hurt" more than swiping the debit card.
    Alternatively, he can keep the savings account unlinked- some banks allow "masking" of Christmas savings account type things, or he could just get an account at another bank (I know that adds complexity, but it might make sense).
    If he keeps the debit card, see about getting him a check register and making him write down everything he is purchasing- sometimes that's enough of a cue to inhibit some people.
    Also, is there anything moderately big he would want to save up for you wouldn't buy for him?

    Something else I note is that it seems you aren't actively incentivizing savings. He may be a little old for a "match", but you could offer to let him spend whatever he makes it through the month with extra. So $80 first month. If only $0.88 is left at the end of the month, next month he gets $80.88 to spend (plus the balance in the account). So if he could go the whole month without spending the money, he can spend $160 next month. A carrot, of sorts. I know this sounds counter intuitive if you see the problem as "he has too much money to spend" but to the degree the real issue is impulse control (but see below), giving him a longer time horizon or preventing "scarcity mindset" may actually help. You could have him write a letter to his future self about it ;-)

    It's also helpful to keep in mind a realistic goal for what you want him to learn. You might well be in the top 1% of Americans on delayed gratification. If you can train him to be able to cover a $500 emergency, he'll be doing better than average for our culture (which says deeply problematic things about our culture, but my point is it may not be fair to say his problem is "no" impulse control).

    1. No one is too old for a match. I would like a match! Also, charities love getting people to match donations.

      Wish I had some good suggestions, too, but I don't have this problem and I only know of two ways people I know have dealt with this problem successfully.

      1) A roommate used to buy savings bonds when you could get paper one in your hands. Then it actually made her feel poorer and hurt her to cash them in. But now you can't get those (except via tax refunds). She also had a separate savings account in a bank at the other end of town (and no checks or debit cards).

      2) Actually handing over the money to people who they trust more. Friends, relatives, co-workers. I've never been the one entrusted with the money, and I don't know anything about the ensuing dramas of re-negotiation.

  4. All of this seems like reasonable advice for reasonable people. (By the way, my husband laughed and laughed at the line, "You might well be in the top 1% of Americans on delayed gratification". To which I responded, "Well, *everyone* should be!!!")

    With J-son, what we're really learning is that he needs -- and wants -- a lot more external control than other people need or want. The separate savings account has worked for 6 years now; he never dipped into it until he started getting all this extra money.

    The challenge he has that other people don't have is that a little bit of spending leads to a lot. For example, if we start handing him cash regularly (like the envelope system), we risk him eventually wanting to steal from us again, because of the habit/association of where the money comes from. It's been more than a year since we had to lock our wallets up every night and keep tallies of the cash inside, and of course we'd like to not go back to those days. Similarly, the problem with the ATM card is that once he started spending a little money, it was too easy for him to go on a binge.

    For him, it's a bit like what alcoholics describe. He might well have to be one of those people who, as Debbie M says, "Actually handing over the money to people who they trust more." I think that's the way J-son wants to go.

    He has a lot of desire to save money -- it's just that once he saves it, he just really needs to put the money in a place where he can't binge-spend it when his impulse control is particularly low.

    1. Sounds like automation will be his best friend later. Since this is too much stress to put on a life partner. Hopefully he will be able to get his paychecks set up to pay his bills and savings first. Hopefully he will be able to resist access to credit.

      For the now, the only suggestion I can think of is to "loan" him the money to make the minimum for a CD and then he pays you back as soon as he gets the check. That isn't going to help him learn impulse control, but I don't think we really have nailed down how to learn impulse control. He may need help setting up commitment devices his entire life.

    2. Yeah, the "loan" part might be a good idea, now that we know that the savings account side is no longer working.

      And the commitment devices as well . . . I have a friend, an artist who has had a VERY successful career. One of the things he's learned is that he just can't manage his money himself. Like, forget about check registers and such. (It doesn't help that he's slowly going blind, so he can't see his computer well -- kind of like J-son is dyslexic, so his account statements and such make little sense to him).

      At any rate, my artist friend has given his wealth to an accountant who doles it out to him in small pieces every month. He's found that he's miserable at keeping track of spending, or of artificially reining in spending, so being on a monthly allowance is the kind of external controls that keep him from getting stupid with his money. That might wind up being the kind of solution that works for J-son in the long run.

  5. "a little bit of spending leads to a lot"

    This is a problem that I have and I'm a very responsible adult who manages money for multiple households. I recognize this problem, but I am also lucky enough to be able to exercise self control 98% of the time, so I developed systems that make sense for me and prevent me from having to use up willpower to fight my natural desires.

    One thing that has worked well in the past was that I would direct deposit to my savings, and auto-dole out a small amount for spending. Most people do it the other way around but this worked much better to teach me to control or ignore my impulses. Also I do better every year at limiting exposure to marketing - we don't have TV, we don't go to malls or other shopping for entertainment, and that helps as well.

    Long term, it might make sense that he has a money manager who will only pay out for his needs and a small amount of wants so they can make sure he doesn't blow through it all in a moment of binge spending. Best of luck developing the right system for him.

    1. I'm so glad to know that for you, recognizing the problem has led to good solutions for you.

      And thanks for the wishes for best of luck in the future. We're discovering since I wrote this poset that the money-impulse-issues seem to be leading into impulse control issues in other areas of his life, unfortunately. Sigh. Reining all that in and re-establishing a way for him to feel he has control --- without having him make life suck for everyone around him --- is our latest challenge. I'm thinking more and more that figuring out a way to avoid exposing him to temptation in the first place is going to be the most successful course of action.