If you were born into a wealthy family, you likely have struggled to find motivation to properly manage your finances, pinch pennies and work hard to move up the corporate ladder, according to Thayer Willis, a psychotherapist and author of “Navigating the Dark Side of Wealth.” But even having upper-middle class parents can make life harder for you. Here are five ways a parent’s success can hinder their children.
1. You Don’t Learn to be Independent
Willis said that wealthy parents can have fairly low expectations. Consequently, their adult children fail to learn how to support themselves. In fact, wealthy children can struggle to learn basic money management. After all, if your parents provide you the cash up front for a vacation or new car, there’s no incentive to keep savings or hold down a job.
2. You Get Disqualified for Financial Aid
The average cost of in-state tuition at a public university averaged $23,410. It topped $46,000 for private colleges in the 2014-2015 academic year. People assume that children from wealthy families don’t have to worry about affording tuition costs, but there are instances in which parents refuse to pay for their children’s education.
A New Jersey teenager, for example, was estranged from her parents and filed a lawsuit seeking money to help her afford education and living expenses. Even if you live away from home, you might have to file your taxes as a dependent, which can disqualify you from sufficient financial aid.
Some private colleges have their own financial aid programs but they can be strict about helping kids from families with high net worths. Financial aid expert Mark Kantowitz, founder of FinAid, an online resource, said that when parents refuse to fund education costs, their kids must rely on alternative options, such as costly private student loans.
3. You Take Up Low-Paying College Majors
On the flip side, wealthy parents have a tendency to encourage their children to pursue their interests. And that leads some to pursue majors with low-paying job prospects.
Whereas kids from lower-income families tend to pick practical majors such as computer science, math and physics, students with wealthier parents tend to flock to history, English and performing arts, according to an analysis by Kim Weeden, a sociologist at Cornell University. She said children from wealthier families might not be accustomed to thinking about how today’s decisions will affect their future finances because they’ve always had a safety net.
Georgetown University’s Center on Education and the Workforce found that majoring in the humanities brings in about $50,000 per year in median mid-career earnings while a computer-science degree nets about $75,000 per year.
4. You’re Not Prepared for an Inheritance
In many cases, an inheritance is not a path to financial freedom — it’s the cause of financial ruin. About 70 percent of people who acquire sudden wealth are broke within a few years, according to a study by the National Endowment for Financial Education.
Sudden wealth can make people irrational and lured by temptation. Many people don’t handle such situations well, Scott Hanson, founder of Hanson McClain Advisors, wrote in a CNBC report. In the case of inheritances, many parents don’t prepare their children to handle such sums of money, so they tend to blow through much of it if trusts aren’t set up.
5. You’re Not Getting an Inheritance
Some children expecting an inheritance and relying on one to maintain their lifestyle might not get one. Many baby boomers represent first-generation wealth and believe their children should earn their own money just like they did, Chris Heilmann, chief fiduciary executive of U.S. Trustn, told CNBC.
In US Trust’s 2015 Wealth and Worth survey, only 27 percent of parents had informed their children of how much they are likely to inherit. That silence could create problems because many children are expecting inheritances to pay off debt, send their own kids to college and fund their retirement years. Some could find out the hard way that their expectations won’t be met.