Parenting Grown Children: What Dr. Spock Forgot to Tell Us

Money Matters: Is a loan a gift when we help grownkids buy a house?

Whenever we talk with friends about grown kids and money, one connection is a constant. Almost all of us have helped or plan to help our children buy a house. We're the generation that was lucky enough to buy our homes before the infamous bubble and whose overall estates have benefited from the pre-2008 relentless climb in home values. The climb has been such that many of our children, successful though they may be at this point in their early careers, can't afford to buy a house. And we want them to have one: Not just as a shelter, but as a solid financial investment. (Yes, we still believe those days will come again.)

When we do extend that helping housing hand, it tends to fall into one of three forms: an arms-length deal in which money for a downpayment is loaned and repayment is expected; a loan that's not-so-arms length and will be repaid when the house is sold; a loan that's really a gift that comes with no strings attached. (There is a fourth form--or so I've heard: Some buy the house outright for their kids. They put up the downpayment and pay the mortgage fees. But that seems a whole 'nother category of house "loan.")

Here's the story in stats, from a 2010 survey by the National Association of Realtors (Profile of Home Buyers and Sellers): 27 percent of first-time buyers who made a down payment received a gift from a friend or relative, typically their parents; 9 percent received a loan from a relative or friend.

For those 27 percent who give housing help as a gift, the survey includes some non-economic factors to consider: either don't attach any strings or declare upfront what those strings are. They can be anything from eventual repayment of the "gift" (which makes it more of a loan) to calling home more often. Not sure how well that latter point works.

Money Matters: A calculus underlies loans to adult children

The question was as abrupt as it was surprising: "Do you help your kids out?" It came from a friend we've discussed money matters with before. Our answer was as brief as it was open-ended: "We do, but it depends."

The friend who asked the question, says he does not. "I believe in fostering independence. They have to stand on their own two feet." And yet, it's more complicated than that--for him and for us.

The issue that prompted his question was a recent request by his married daughter--a mother of two and a lawyer who has opted not to work full time. She had called dad and asked him for $1,000 to cover the costs of a trip to Los Angeles to be with her best friend whose mother had just died. Dad declined. "It would be nice for her to go," the dad told us, "but this is something she should pay for herself. My wife and I worked hard for our money"--dad and wife retired a year ago--"We're comfortable but we don't have that much."

Paterfamilias chimed right in. "It's not an emergency, it's not something she absolutely needs. I can understand turning her down."

The dad then went on to say he had just lent his son money to buy a boat. A boat! The son is prospering in his job and has long dreamed of owning a boat. He asked his dad for a loan so he can buy it now. A boat may have more physical substance than a trip to L.A. but it's not exactly a necessity. And could clearly fall under the category of something he should pay for himself. And yet, dad said yes, no hesitation. Why? The son has borrowed money from dad before; he has always paid it back--on time and in full. The daughter, it turns out, has also borrowed money from dad--and never paid it back. Her requests for money come with a sense of entitlement--at least that is the way dad interprets the requests.

In effect, dad is applying a business-like calculus to his children's requests for financial help: A loan, yes, but only if the credit rating has been maintained. A gift, maybe, depending on what it's for and how good the credit standing is.

Our calibration is slightly different: different children, different situations, different attitudes. Ours don't ask for help. It's only when we learn about a need that we pitch in. And we try to do it subtlely. Sometimes it's couched as a loan; sometimes, as an outright gift. But beneath it lies a similar calculus: How responsible are the life choices they've made? They may take a financially risky course but a responsible one in terms of doing something worthwhile. If that creates a fiscal need along the way, we'd rather help them out now then leave it to them later. But the bottom line is similar to that of our friend's: We need to feel they have a sense of responsibility and accountability. We wouldn't feel good about lending or giving our children money if we felt it would be frittered away on, say, a sports car or a Prada purse. Not that grown children don't have a right to those things--they do. But only if they can afford them on their own.

The conversation reminded me of a scene from a PBS version of Jane Austen's Mansfield Park: A married daughter runs off with another man, to the shock and opprobrium of her family. The father--wealthy man, of course; this is Jane Austen country--is livid. He refuses to welcome her into his home--but he will see to her comfort. For him, as for many of us a century later, however much the calculus swings against a grown child, we aren't going to let them face life's crueler side if we can afford it. Unless letting them face it is the only way they'll grow up.

Setting a Deadline: When grown children move back home, how long should they stay?

When her son's business crashed, Sheri invited him and his family--wife, two toddler-aged children--to put it all behind them . She encouraged them to move across the country and into her house until they got back on their feet. Two and a half years ago, they accepted the invitation. They're still living with Sheri.

"Friends asked me if I put a deadline on it," Sheri says. "Did I tell them they had a few months or a year or something like that?"

She did not. "If it had been just my son or just my son and daughter-in-law, I might have put a time limit on it. But when there are two children, it's different." Besides, it is not as though they wanted to prolong the stay. As Sheri puts it, "I have sympathy for my daughter-in-law.  Who at 33 wants to come live with your mother-in-law? I have been cognizant of that."

And then there was Sheri's past history: "My first husband passed away when I was 35 and I had three  children. My parents and my sister were there for me. My mother never said, "We can’t always help you." So there's a unique bond because of what happened. I'm giving  back to my son the way my mother gave to me."

Even if there were no emotional reasons, hard economic times make it trickier to set a deadline. And certainly, Sheri's son and daughter-in-law faced harsh times, moving as they did from the fire of Florida into the frying pan of California--two states that have suffered inordinately from the economic downturn. Besides, Sheri wanted her son to not just get a job but a career-line job. "I told him to take time to get his feet on the ground," she says. "You can't put a time limit on that."

In a few months, the family of four will be moving to a rented house an hour's drive from Sheri's. Both adults now have good jobs. Although there were difficult times and Sheri is looking forward to having her house, her husband and her life to herself again, she is not sorry she did it. Friends badgered her about not setting a time limit, but she doesn't see why she should have. Yes, it was hard. Yes, it was uncomfortable. But she had a goal in mind--not just employment but good employment--for her son and her daughter-in-law. And she was fortunate enough to have the means to afford the luxury of time it took for her son to get back on his feet. She can count the 2 1/2 years but she has never toted up the cost of the gift in terms of money. Do her other children? That's another issue.

Share the Wealth: To help our children now or to leave a legacy later?

Paterfamilias and I have been incredibly lucky. We've had good jobs and rewarding careers--to the point where we have been able to set aside enough padding for our retirement--and a little bit more. It's that "little bit more" than wiggles and jiggles inside my brain and bank account.

If we have "a little bit more," why not share it with our grown children in the here and now? Not to spoil them but to step in when there's a crisis or a need. And to let hem know in advance that should they need help, we've got their back. If we can afford it. We see nothing wrong in that. But recently, I've been doing some research on the question and that has raised some doubts about how good a practice this is.

One book by a psychologist suggests that to keep on offering money both spoils grown children and infantilizes them. It's a way to control the kids by keeping the apron strings tied to money. He suggests we who offer cash are suffering from affluenza, that our financial parenting has run amok.

I took all that to heart, but then i read an online story that interviewed several psychologists who all tsk-tasked the idea of helping kids out with money. When questioned about their own personal practices, however, all admitted to being guilty of helping out or indulging their grown children.

is this a case where common sense and best psychiatric advice differ?

And does it all come down to what we're comfortable with, what makes sense for our particular children and their behavior. If they aren't dependent and don't make constant demands and suggest they expect your help indefinitely, then why not help out on an as-needed basis? Isn't this a case of no harm no foul?

Money Matters: The long arm of parents who help their kids.

"We are spending so much money on our kids," a friend tells me. "They need to be rescued every once in a while."

The kids in question are hers from her first marriage and his from his first marriage. One of her sons went through a painful and devastating divorce, including court battles over child custody and support. He lost his job. My friend, her husband, her other son, the father of her son and an uncle all pitched in to help the divorced son. It took several years before he was back on his feet. And now his eldest son--one of my friend's three grandchildren--was ready for college. He had to choose not the best school he got into but the least expensive one. My friend and her husband dipped into their retirement savings to pay tuition--her son couldn't afford it and neither the ex-wife nor her parents (the other grandparents) were willing to help out.

My friend could live with the choice of the lesser school. That's life. It made her angry that the other grandparents weren't willing to help. That's life, too, but more emotional, verging as it does on fairness.

Now, she's got another financial anxiety: Her stepson--a man in his late 40s--has always been self supporting and single. And has always been shy around women. So, when he started dating a woman his age and then announced he was getting married, everyone was thrilled. But the new wife came with old and huge debts from her life with a former boyfriend. The new husband is helping his wife pay off those I.O.U.s--the credit card debt keeps compounding like crazy--and now everyone's helping out. It's another drain on my friend's dwindling retirement resources.  

"It never ends," she says. "It seems like one of our kids is always having a money crisis." A few years ago--just before he retired--my friend's husband paid off the mortgage on their house. "So we are lucky," she says. "What would we do--how could we help our kids--if we had a $2,000 a month mortgage payment to meet?" It also raises the question of how long you help out your grown kids. When does the rescue line end? And maybe even more to the point: How do you define crisis?

Does it help to know she--and by extension we--are not alone? The Brits are experiencing similar pressures. Here's a news story I just came across. In Great Britain, "millions of grandparents are cutting back their spending because they feel under pressure to fund their grandchildren." Research also found that the majority of grandparents regularly spent cash from their retirement savings on clothing, toys and other treats for their grandchildren. Others helped pay for essentials, such as shoes and school uniforms, to help their own children balance their finances.

Here was a key finding that hit home: "Although some children did ask their parents for financial help, much of the pressure to provide for grandchildren comes from the grandparents themselves." 

Money Matters: Helping kids with big purchases

When it comes to money, we're all over the place--tight-fisted to spendthrift; controlling to reckless; obsessed to careless. When it comes to our kids, it's even worse. It gets emotional, often reflecting where we've come from in our own lives.

Here's what I mean: A friend of a friend is a very successful and high-profile lawyer--a millionaire many time over with a big house and many expensive cars to his name. And he did it by himself: Started with almost nothing and slogged his way through to his current position of power and affluence. That, at least, is the routine he has always given his sons when he tells them he will not help them out financially--no loans to buy a car, a house or pay unexpected expenses. When they were heading to college, he insisted they work their way through. His message: They should work just as hard he did. He doesn't owe them anything.

This is not to suggest he isn't a loving father. But he draws a tight fiscal line and has yet to cross it. I've written before about those of us who prefer to use our hard-won money to help our kids out--to see them enjoy in the here and now the relief our money can bring. But we also have friends who say, we put our kids through college and that's it; we don't intend to help them with anything else--not that they can't afford it; it's a principle. It's an issue I've visited before on this blog.

It may get down to something as basic as our life experiences. If our parents were generous, we may have that model and want to be generous as well. Or, if our parents were fiscally restrained, we may decide we don't want to follow that path. Or perhaps they were generous to one of our siblings and that brother or sister squandered the money and our inheritance as well. We might want to be more cautious in the help we offer our children or the strings we attach to that help.

If you have the money to do help your grown children, where do you draw the line? Or are you all or nothing? Some things--help with paying off college loans, perhaps--but not others? And how do you come to your philosophy of giving?

Money Matters: Are you squandering their inheritance?

So you took that lavish vacation--around the world in 90 days. Or you've remarried and are indulging your new spouse with a luxury condo or cash or other valuables. A recent piece in Money magazine looked at the issue from the grown child's point of view: What to do if your elderly dad showers a new girlfriend with diamonds or good-old mom maintains an expensive membership to a country club she can't afford and never goes to. Last fall I blogged about a divorced friend whose children wanted her to save some money for them because their father, recently remarried and a man of some wealth, was "spending it all" on the new wife.

We can be a source of aggravation, especially to the grown child who's worried about buying his first home or paying his college debts. He may be wondering whether he can count on a legacy from us. She may even think she can stop our free-spending ways by asking us to "grow up."

What Tyler Cowen, a professor economics at George Mason University and the author of the Money article, suggests is that these grown children take note of a classic paper called "The Strategic Bequest Motive." What they'll learn there: Time is money. That is, we parents of adult children want something in return for a bequest. Specifically, Cowen writes, "studies show that children who frequently call and visit their elderly parents tend to inherit larger amounts than those who don't." Taking that a step further, Cowen recommends that the best way to stop us from frittering away their legacy is for them to shower us with love and attention. "Whether consciously or not, they [Reader: That's us.] will treat their money more carefully because they'll want to leave it to you."

I have a different take on the bequest outcome. Perhaps the care and attention translates into a larger legacy because the love and affection already infuses the relationship--even if the patriarch or matriarch is enjoying a childish spending spree.

The authors of the original paper must have had their misgivings about false pledges of love and devotion. A quick check with the paper shows the authors give space up front and on the first page to a quote from King Lear:

Tell me, my daughter

(since now we will divest us both of rule,

Interest of territory, cares of state),

Which of you shall we say doth love us most,

That we our largest bounty may extend

Where nature doth with merit challenge.

Frankly, we should all have a conversation with our grown children about legacies--what they can and cannot or should not expect. We can only hope the strategic bequest--or the need for it--never comes up. RIP King Lear--and Will Shakespeare as well. 

Money Matters: Staying on the job to help the kids out

One friend is paying for her daughter's attempt to start a family through a surrogate pregnancy. The tab is high--$100,000 when all is said and done. Her husband is semi-retired and her daughter and son-in-law could never afford the tab. So she's continuing to work--"to pay the bill." At least, that what she says--that if she weren't paying for the surrogate's pregnancy and all the testing and medical procedures that were part of the pregnancy, she would retire--or work part time.

Another friend is also not retiring. Her son has a prestigious job--but the salary is not nearly as high as the job's profile. Maybe someday he can cash in on all that prestige. Meanwhile, the parents want to be sure there's the wherewithal to help out--when the son's roof needs repair, the basement floods, the grandkids' dental bills mount--without eating up their retirement savings. So they, too, are continuing to work--despite tempting thoughts of retiring to travel around the world.

Lots of us are doing the same thing--putting off retirement in order to have the cash to make life easier, better, more bearable for our children. Some of us are kidding ourselves that this is why we continue to work. A lot of us like working--like our jobs and the second family that work provides--or fear the loss of vitality that might come with retiring from the work force. We don't want to give it up, even if we are dog-tired weary by the end of the work week. While some of us continue to work "for our children," many times it's more of a mixed reason. What makes me nervous is any hint to the adult children that they are the reason we're still working. What a guilt trip that would lay down. And it might not even be true.

Money Matters: Putting money aside to help the grown kids and their kids

This recession is hard on everyone--more so on those it affects directly: those with the lost job or the diminished 401k. But that hasn't stopped many of us from using what we've got to help those we love. A  study out of Britain may reflect what's happening here as well.

Here are the basics of the report:

13 percent of British grandparents are filling up savings accounts with money for their grandchildren to inherit:. A fifth of this group are saving upwards of £400 every year, which will turn into a £10,000 nest egg when the children turn 18. Additionally, a tenth of these over-50s are putting money into savings accounts to help their adult children through the recession.

The study is in sharp contrast to a report released earlier that revealed that six in 10 over-50s are concerned that their pensions and savings will be insufficient to look after them in retirement.

Meanwhile, back here in the U.S.A., a friend tells me what she's doing to assure that her 33-year-old daughter--unmarried and still struggling with job losses in this economy--will have savings in the bank on her far-in-the-future retirement day. She's has set up a Roth IRA in her daughter's name and is funding it for her--for now. More on this interesting idea in a future post.

Money Matters: When does the dependence of grown children end?

A friend tells me his friend's woes: She's a divorced divorce attorney with a small but steady practice. Her daughter has gone to New York City to pursue her dreams. She wants to be an interior designer--get right in there and help people decorate their homes. And she has a talent for it. Only trouble is, the daughter is 28 and has been in dream-pursuit for several years--without much luck. She has yet to land an entry level job with a design firm. The mother has been subsidizing her daughter--"paying a hell of a rent for a place in Hell's Kitchen," says my friend. The mother is feeling the pinch of supporting a second household--her practice is good but not that good. "At what point ," she asks, "do I just say no?"

My friend feels he's been approached because his lawyer friend, a single mom, is looking for a male point of view--women being "more nurturing and not as practical," he says. His practical point of view zeroes in on his own turmoil with his daughter, who is in her early 20s and still in undergraduate school, having transferred colleges and programs several times. Now she wants to spend her winter break in California--with his financial help. "I can't seem to get her to focus on the notion that the purpose of college is to help you become self-supporting," he says. "When I was her age I couldn't wait to take control of my life."

And that, he thinks, is at the core of some of the dependence that seems so prevalent today. His argument: We [our generation] couldn't wait to get a job and move out of our homes because there were so many restrictions on us. But kids today have so much freedom at home--free meals, free room and the freedom to have as guests in their bedroom anyone they want. "They can practically make love in the living room and no one would say a thing," he says. So, he asks, where's the urge to get out there in the real world and declare independence?

It's a theory worth thinking about. How comfortable are we making it for those who've filled our empty nest? Or are living in their own little nests on our dime. Do some of them need a tough-love push? Are we a little late in delivering a practical message?