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?