Yahoo Finance Rachel Cruze & George Kamel: 8 Ways Financial Codependence Could Hurt Your Finances
People use many terms to describe financial independence, including financial peace and financial freedom. Whatever you choose to call it, most people like to have full control over their finances. Financial codependence means a relationship where someone affects someone else’s finances, and it happens in more ways than you might think.
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Personal finance experts Rachel Cruze and George Kamel are both personalities on “The Ramsey Show.” They also co-host their own YouTube channel called “Smart Money Happy Hour”; and, in a recent episode, they tackled the idea of chasing financial freedom and how some are stuck being financially codependent.
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Government Codependence
Cruze and Kamel pointed out that one way you’re financially codependent with the government is via taxes. You must pay the appropriate amount of taxes, meaning you can’t ever be entirely financially independent. Even if you’ve paid off your mortgage and completely own your house, you still need to pay property taxes. Failing to do so can result in the government putting a lien on your home.
There are many key reasons paying taxes is essential. Public schools, paved roads, police and parks are all made possible because of taxes. However, in some cases, government codependence can overstep its bounds. Some individuals become dependent on government programs when they should strive to become financially independent. This codependence, in turn, puts further strain on the taxpayers.
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Following the Crowd
Comparing yourself to others is another way you may be financially codependent. You may decide to buy a house or upgrade your car because all of your friends are doing that. In this case, your decisions and finances depend on others. Even if you don’t have any dependents and don’t have anyone helping to support you, spending the majority of your money to keep up with the Joneses keeps you dependent on others.
Minor purchases made by following the crowd also affect your finances. A SurveyMonkey study found that 29% of Gen Z shoppers were more likely to purchase from brands active on social media. Eliminating the urge to buy the trending item will allow you to be more financially independent.
Relying on Mom and Dad
One major way that people are codependent financially is by relying on their parents’ income for too long. Bank of America reports that 46% of Gen Z depend on their parents for financial help. Using your parents’ finances for your benefit can come in multiple ways, including living with them or depending on them financially for too long into adulthood. However, it also can impede your financial development.
Cruze said she knows many parents who help their children financially and said it’s fine to a point. While many families support their children with things such as school tuition for private schools or colleges, at a certain point, it becomes enabling. For her children, she’s willing to give them six months to a year after graduating college to figure out what they will do.
However, Cruze also brought up a situation where parents help adult children support themselves. In this case, the adult child is a very hard worker, but the career path is making it difficult to become financially independent. Kemal agreed that this wouldn’t necessarily be coddling as that depends more on a lack of drive and poor attitude.
Depending on Your Children
Conversely, there are parents who depend on their children to pay for them financially. In old age, some parents may turn to their children to cover costs such as medical bills, nursing home costs or retirement when they didn’t prepare enough.
Other cultures often expect this type of contribution from children, but American culture values independence. Kamel noted that this can play a big factor in someone’s finances if the person’s family embraces a different culture, but it can also put a hefty financial burden on the children. Individuals with children are especially financially challenged in this situation. Having to care for your children and parents financially leaves little money for yourself.
Spousal Allowance
Kamel brought up a marital situation where one individual controls all of the finances while the person’s significant other receives an allowance. He finds this to be an unfair arrangement, citing his own relationship. Even if one partner stays home and doesn’t earn an income, the person often still does a lot of necessary work raising the children or performing household duties.
Cruze agreed with Kamel, saying that marriage arrangements should be equal regardless of who makes more money. She thinks the couple should have a joint bank account and spend money appropriately depending on their joint financial plan.
Cosigning a Loan
When a relative or a friend asks you to cosign a loan, this makes you codependent financially. Cruze explained that an individual who needs a cosigner is bad with money. If the person had taken care of credit and worked to get a good credit score, they wouldn’t need your help.
Callers on “The Ramsey Show” have brought up this situation multiple times. Kamel said many of the callers in this situation find themselves in a tough spot because the people they cosigned for stopped paying, and now they must pay off the rest of the loan.
Additionally, as a cosigner, the loan will appear on your credit report and positively or negatively affect your credit score. Because of the serious consequences, both Cruze and Kamel agreed it’s best to just say no and refuse to cosign a loan.
Waiting for Someone To Pay You Back
Loaning money to a friend or family member in good faith can lead to a toxic relationship if the other person keeps making up excuses and can’t pay you back. Kamel explained that this can ruin relationships, and giving the money as a gift is better than expecting them to return it. Giving the money away won’t lead to resentment, and you won’t have to think about it. If you’re unwilling to gift the amount, it may be better to refuse.
Debt
Debt is the ultimate form of financial codependence, and it’s very common among Americans. The Federal Reserve Bank of New York reported in the first quarter of 2024 that total household debt had risen to $17.69 trillion. Having to take on debt is the opposite of financial freedom. Your entire lifestyle depends on paying someone or some institution back when you borrow money.
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