Do you ever wonder how much you owe your kids? I do. I ask myself this question almost every day.
I live in a pretty affluent area. If the kids decide to attend attend a picey college their parents usually send them there with no questions asked. And after these kids graduate, many with over $100,000 in student loans, many move back to the house because they can’t or won’t find jobs. And the bailouts don’t end at college.
Sometimes parents loan money to their kids to start a business or to buy a house without looking at how that loan is going to impact their own financial future.
In short, what I see in practice is a very simple system. If the parents have the money (or have access to borrowing money) and the kids want to spend it, the money gets spent. Done deal. Very little thought goes into questioning if the expenditure is worth it. At least that’s what I’ve seen.
And I understand the dynamic. When one of my own little angels got accepted into some very expensive universities a few years back, my wife and daughter considered it a forgone conclusion that she’d be going without giving the financial impact of this a nod. We went around and around on this.
My wife thought that if we could pay the tuition, our daughter should go. I had other ideas. I was willing to spend the money we’d saved for her education. But I wasn’t willing to spend what we’d saved for our retirement. Could we have diverted those yearly planned additions from our retirement accounts to our daughter’s education? Yes. Should we? I thought the answer was no.
If you have the money, should you spend it?
What do you do when you have to choose between loaning your daughter enough money to open her new business at the cost of jeopardizing your retirement? When are you being prudent? When are you being selfish?
Let’s say you figure out how much you need to save in order to retire. In this example, let’s say you’ve already saved up $200,000 and you determine that another $20,000 every year on top of the existing savings should be enough to get you past the retirement finish line.
Now your son comes to you with the idea of becoming self-employed. He “only” needs $75,000 in order to start his great business idea.
Do you have the money? Absolutely. Can you afford to “loan” it to him? Not if you want to retire. Making that loan will set you back an additional four or five years.
Now, you can see that on paper it’s an easy decision to make. But try telling that to your son – especially if your spouse is all in favor of making the loan. I knew a couple who did this and lost everything. They lent their son their entire retirement and now, at the age of 70 plus, they are both back working.
Unlike most posts, I can’t give you a blanket answer. I don’t even know how much I owe my own kids. I do know that before I write a check, I have to consider all the alternatives. I have to be fair to my wife and myself too. And even though it’s not very “PC,” that’s what I do. Where do you stand on providing support for your children?
We are giving our kids the best education we can (we are homeschooling – there are no private schools near us – though I’m not sure we would send them anyway). We are giving them a solid foundation in our faith. That’s what we owe them.
Money-wise…we have six kids, we’re a single income family, and my husband’s income is through the school system. So, the kids are being taught that they will have to stand on their own as adults. We most likely won’t have the money to help them even if we wanted to. But I don’t think it’s so bad to have to learn to make it on your own.
Neal Frankle, CFP ® says
Karyn, to me it sounds like you and your husband are doing a fantastic job. I actually think that it’s great that kids learn to make it on their own. I believe you are doing them a huge service. Thanks for your comment!
We owe our kids NOTHING after they turn 18. They are legally adults at that point and need to learn early how to manage their own finances and not continue to rely on “mommy & daddy.” After working & slaving to raise 2 kids on my own, I gave them everything they needed, and then-some. I made tons of sacrifices in so many areas of my life, gave up my best years, and during some points, worked 2 jobs at one time. They have their whole lives and futures ahead of them to borrow/make/pay back money. This not only teaches them responsibility, it helps build their credit rating, and it also teaches them not to spend money they don’t have. After they turn 18 and get out on their own &/or leave for college, I don’t have as much time left as they do, and I, for one, want to enjoy it. I can’t do that if I let them mooch money off of me. Life is too short. I made the mistake of giving my son a small loan for a down payment on his 1st home. He has paid back part of it, but I did make him sign a document stating that he is to pay back all of it or suffer the consequences. Sorry, but even where family is involved, money is money! I worked way too hard for it to just give it away. I’m on your side, Neal. Stand your ground.
Ronald Dodge says
I’m with you Neal. I also have put various rules in place and my wife knows I will stand by those rules as they are based on how life and money works.
As for retirement, who will fund it? No one but us 2. As such, I will not break my 25% of “Actual Gross Earned Income” must go to countable savings rule. Countable savings are one of three things:
Net contributions into retirement funds
Net Debt reduction
Net contributions into emergency fund
As for college funding, there are ways to fund for that. One must be sensible about it, but there are ways to fund for college. I would love to be able to help my daughters out as they get to that point, but I can’t even say I will be able to do that entirely as I have other financial objectives that I must meet first.
I have went back to college and for the most part, I have had to fund every bit of my own college outside of the help from the Pell Grant and state grant. I already built up 246 quarter hours worth only for 93 of them being vaporized due to the community college having gone belly up and the state board has no record of it. It looks including the 18 hours I’m about to finish out next week, I will need about 75 more credit hours to get my 4 year Accounting degree. I won’t know exactly how many more until later this month or maybe even next month.
Not only have I been paying for my own education, but I also been paying my wife’s college loans. I have no where to turn for help as essentially, I am the loan crusade. The only exception to that would be my wife working currently to help make ends meet, but everything else has been on me. All in all, not counting this new college expense, that’s $80,000 I have had to pay on student loans not counting interest for myself and my wife combined. I managed to get that down to about $20,500 prior to me having taken on about $11,000 more in student loans for the current academic year.
The only family I really have on my side are in MI or CA. I may be able to ask my uncle, but I don’t want to ask him unless I really feel the need to as he has his own set of things to deal with. As for the family in MI, that family is also going through hard times right now with unemployment just like I am.
As for my wife’s side of the family, her sister and brother-in-law are both working, but don’t really know how to manage money too well, and her mom who lives with them have only fixed income, so can’t really ask in that regards either.
As such, other than maybe my uncle’s household, our household is in better shape than the others within the family financially speaking. I do believe my uncle’s household is in much stronger financial position than we are, but that’s also primarily cause he’s been around a lot longer. Some aspects we have differing views of how we accomplish those objectives, but they both work. His is more safe haven route based while mine using mathematics approach to get the most bang for the buck and when it makes the most sense to switch gears. I still factor in risk factors into my approach, so it includes statistical aspects of mathematics into the equation. Some may say this is the same thing as monte carlo simulations. I don’t have that per say, but I still have the statistical aspect included.
That’s where the rules are developed from and what will dictate if we help our kids and by how much. Of course, the kids must be doing their part as well, else that will also cut off the support. It’s one of those things you learn the system and use it to your advantage. That’s what I had to learn as early as 8th grade, I had to learn the adult’s game, strategize within the rules of their game and beat them at their own game, even with them (the school officials) using rules against me in attempt to hold me back academically including in subject matters that I have been really strong with (Math in particular as they were attempting to make me out like I couldn’t do math at all and yet, I was pretty well advanced in Math. My LD dealt with Language, not with Math). I didn’t really beat them at their own game until my senior year. It was the time when they held me back in General Math in 8th grade after already having had it in the 7th grade and all cause I did no homework in the first quarter, they dropped my grade from an A (I aced all of my tests and quizes) to a C. They then had the nerves to tell me all cause I got a “C” in the class, they weren’t going to move me up. Right then and there, I thought to myself, “I see where this game is going.” and that’s when I conformed to their rules, but I also strategized and had plans to beat them at their own game. Sophomore year of high school (academic year of 1987-88), within the first 2 weeks in computer literacy, I was outwitting the teacher in the subject matter to the point he was like, “Is this for real?”. So the office people were handing me programs left and right I had never used before back in those DOS days, and within the hour or 2, I was training them how to use such programs. One of them was so stunned by this fact, she just had to ask, “How do you pick up on this stuff so fast?”. I replied right back, “I think like the computer.” In many regards, I do think like a computer as a result of the LD forced me to learn how I have learned to overcome that issue. As such, I learned to think like that before I had ever even touched a computer. My first real computer experience came in October of 1984 in the 7th grade with me introduced to computers on the programming side of BASIC. Didn’t know what I was doing at first as far as how the codes worked, which the teacher had typed out, but seeing how the program worked strictly based on that text, that’s what drew me in, and after that, the rest was history as I just took off with it. I went from knowing nothing about computers (October 1984) to as advanced of a user as anyone could by late 1987 with very little chance to work on a computer back then. But yet, by the time I was a sophomore in high school, I was already writing complex formulas within Lotus 1 2 3.
For me, I learned English in a manner how most people in the programming field (I.e. those in Computer Science major) learn programming languages. As such, that’s what prepared me for the software side of computers before I even touched a computer. But then me being forced to learn the art of memorization not only had the significant impact of overcoming the LD, but it also spilled over into all other subject matters only enhancing those areas that much more. To conquer this memorization skill in my childhood years strictly on my own, it took me 10 years to conquer it.
As for my kids, I will help them out as I can, but I won’t do hand outs. As such, they must show they are doing what they can and actually doing the work.
While they are kids, yes, I have to support them, but once they are out of high school, then they are pretty much on their own, though can still get support, if they do their part. As for things like a car, again, they will have to financially support a large part of that. Part of that, there was one foster child who kept getting into wrecks and the priest only kept paying for the repairs with no hardship on that foster child (well by that time, the foster child wasn’t really a child anymore as this took place when he was 18 and 19).
Panos Cross says
My son thought he was doc-hollywood as he bought his fiance the large diamond engagement ring and proposed while on a Carribian cruise. Soon after he lost his job and owed the money he borrowed by way of a home equity loan. As the creditors came looking for their money, he finally asked me to help. We ran through his assets and he actually had enough money to negotiate a settlement making him whole, except for his 1st mortgage. However, he wanted me to “give” him the money he needed so that he could hang onto HIS assets. it was as though there was a sense of entitlement on his part. I realized that his debts would be mine if I agreed and I never even enjoyedthe cruise and I have no diamond ring.I said no and have suffered some loss of the relationship over this. Things have not been the same, although he claims there are no hard feelings, I sense there is. It was a very tough call.
Neal Frankle says
It does sound like a very tough call to make but the right one. Over time, he’ll hopefully appreciate what you did as in HIS best interests. Good for you .
chuck wintner says
I think we owe our kids guidance toward becoming self-sufficient. We used to think a college diploma assured that. Now we know better. The academic rush-rush rat race, pressures kids and parents with fear-based lies. What we owe our kids most is to demonstrate with our own behavior that life is a process, not an end result. We all have basic material needs, but they’re really less than we think. Work, study, stay away from Sallie Mae. If you need a license or degree to fulfill your dreams, pay for one class at a time as you work and earn. Slow down. Smell the roses. Be kind. Life is good. The hardest part of this, of course, is to role model it, but it’s what I think we owe our children most of all.
Neal Frankle says
I really like that Chuck. Nice.
Your question sparked a few other questions: How do we diversify the gifts (monetary and non-monetary) that we provide to our family? How do we manage family risk? Can we use a stop-loss strategy for financial and life planning?
Neal Frankle says
@Lee. These are indeed interesting questions. Maybe a post w/come out of it !
Striking a balance between supporting/providing for your kids and not extending their adolescent “entitled” outlook can be tricky. It’s interesting that people seem split into camps over “no one helped me, why should I send my kid to college?” and “no one helped me, I want to do that for my kid.” I saved for my 2 kids’ college despite divorce, but they always knew the $ was limited. One is 23 & tapped part of it for a new (used) car but understands the rest is intended to help him get a start at something-college or business-that will help him advance his future. The other is 21 and used about 3/4 of it for a single year of pricey college. They are both working, supporting themselves & thinking ahead, & the remainder is available when they are ready to use it for their betterment. That will be the tricky part! As of yet, I have not put it into their control, and they don’t seem to have any problem with that….. I’m thinking I did something right!
While I didn’t feel I necessarily “owed” our children a college education, my husband and I wanted to give them the “gift” of paying for four years’ tuition at a state college. If they wanted or needed to go longer, or to another school, they would have to fund the excess themselves. (Note- my parents did not pay a dime for my education). Result – Our two sons graduated from state colleges with degrees in 4 years. Neither had to work during their time there, we told them their job was to get good grades, that this was our “gift” to them to have the opportunity to get the foundation for their futures as adults. We were happy to provide this, and lucky enough that we could likewise continue saving for our own retirement. They are both doing well, and it feels good for us all!
Neal Frankle says
I have a similar attitude. As long as my sweet little pilgrims do a good job in school they are doing their jobs. Congratulations on having successful kids. It feels great…doesn’t it?
Yes! I did want to add that our younger son who graduated 5/2010 was a boomerang for close to a year. We continued to pay his car insurance, cell, etc., but not any spending $ — it’s not that he wasn’t trying or taking what he could get at the time. He has since landed a nice job with benefits and we were finally able to do what I call “remove him from the books”. He now lives in another state and we just had a wonderful visit with him over Thanksgiving.
Neal Frankle says
Right. This is a particularly challenging time for our children. Great that you continued to invest in him until he found a good job. Obviously, you and your husband did many things right. Nice job!
Neal u are right on again love your articles. Wife and I having this discussion this week. Men and women often part on this issue. Another question ” how much can you leave your children and they will still be good okay?”