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

Re-Nesting: Our grown kids can make their fortune by moving back in with us.

We've all read or heard stories--or experienced the real thing--about college grads (or even older kids) moving back home. Thank you Great Recession and the Oh-So-Slow Recovery.

But that's only part of the re-nesting story. As I've written in a previous post, having our adult children live on their own after college is a socio-economic and cultural phenomenon. In many other countries (first world and otherwise), it's accepted as the norm that the kids will live at home until they marry. And for good reason: When they have a job, they can save money for their future connubial adventure or to invest in an entrepreneurial dream.

            All of this is the long way around reporting about a formula I came across recently: How much a stay with mom and dad is worth. The logarithm factors in the usual stuff--rent and food, as well as the other perks of living at home, such as having an Internet connection and cellphone paid by the parents and having laundry done by the host (usually, the hostess.)The findings? I'll let The Calculator tell it:

"I wish I’d lived in my parents’ basement the last four years. I’d be $85,000 richer. That would put me in down payment [on a condo] territory already.... Instead, I wasted all my money on rent, food, and TV."

Our hero kept a detailed spreadsheet of everything he spent in his four post-college-grad years living at home and used that journal to create, as he puts it, "a breakdown of the money I washed away."

       

Want to know what you're host-home is worth to your grown kid? You can go to the “living with your parents” calculator and plug in rent and other expenses (or use The Calculator's estimates of his spending habits) and see how much your grown child would save in four years of living in his or her old room at your house. Hint: The Calculator assumes you'll pay for car insurance and put him or her on your health insurance and that the money saved from living at home would be invested to earn a return.

Bottom line: Re-nesting is worth a sizable nest egg for them. For us, it's a less monetary formula: A chance to experience quality and quantity time with them. Fortune and fortunate tied up in one small bedroom. 

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Money Matters: When we help out our grown kids, whose hand pulls the purse strings?

 My friend Cathy's middle son graduates from a local college in May but he has a lease on an apartment that runs through August 1--at a cost of $1,000 a month for his share of the rent. Cathy has made it clear that he should find a sublet for his room and move back home to save the family the $2,000 in rent. Her son has countered that he doesn't want to live at home. She told him that was too bad but "we can't afford the rent and neither can you." He repeated his argument: "I don't want to live at home."

It's at this point in her "he said/she said" story that she tells me, "He'll probably tap his dad for the money. [The dad] can't afford it either but his pride will kick in and he'll do it."       

Cathy does not say this with admiration for her husband. All through their child-rearing years this has been the pattern: She takes a tough stand on financial matters and he's a soft touch. It drives Cathy crazy.

She might find comfort in a recent Ameriprise survey, Money Across Generations II that reflects her family's dynamics: It found that mothers are more likely to chat with their grown kids about money, but the dad is more likely to dole out the cash--for certain things. The "certain things?" Anything having to do with a car.

Here are the numbers: Of the 93 percent of baby boomers who say they’ve provided financial support to their adult children, 58 percent of fathers (versus 48 percent of mothers) have helped by putting up cash for a car; 51 percent of dads (versus 43 percent of moms) have paid for their grown kid’s car insurance; and 37 percent of fathers (versus 29 percent of mothers) helped with car payments.

There was one outlier: 42 percent of dads (versus 32 percent of moms) co-signed a loan or lease agreement.

Cold comfort, but there you have it: Dad's are likely to pony up the cash, especially if it has anything to do with a car or their adult child's ability to live on their own. The mom: She gets to talk about why she's saying No.

 

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Emerging Adults: When is it time to cut the cord on financial support?

 These have been rough economic times and they aren't over yet. Young adults (recent college grads in particular) are having a much harder time than we did in latching onto a career job--harder even than their older brothers and sisters. There are  economic stats and charts ad nausea that support the discouraging outlook.

All of which brings up the question: Should we help support our struggling young adults and if so, for how long?

                                                  
  

The question is discussed in a recent column by Carl Pickhardt who writes about adolescence but often about the upper end of a still-turbulent age--the 18 to 23 year olds. Here are some his observations about extending their financial dependence on us:

--Some of us may "enjoy parenting and don’t want to quit or don’t know when to quit or believe a period of older adolescent struggle is no time to quit or that a good parent never quits or they have an older son or daughter who doesn’t want them to quit."

--"Just as parenthood doesn’t come with a set of directions for how to get started, there is no fixed schedule for financial letting go. Thus many parents continue their parenting by offering extended help, often of the financial kind, until a firm hold on young adult independence is finally gained."

--"What age should young people be expected to live dependently at home before leaving and beginning their actual independence? There is so much cultural variation. In the United States, we seem to have a common parental expectation that after high school graduation age, young people should be ready to move off more on their own. ...The point is: there is no universally fixed schedule for when the departure from home and the undertaking of full financial independence should begin."

--"In one sense, the young person who claims the inability to “afford” to live independently on the little money they can make may not exactly be speaking the truth which is that they can’t live as comfortably as when living with parents. In fact, electing comfort they may be missing out on learning some pretty powerful survival skills such as doing without, scraping by on less, prioritizing fundamental needs, buying cheap, sticking to a budget, making ends meet, living within one’s modest means, and maybe working more than one job to get from one week to the next to support a fragile independence. So if your son or daughter is up to the hardship, don’t automatically jump in and try to spare them the challenge."

--"You want parental help to foster self-help, not discourage it. This is why the helping contract must be conditional: 'Before we help you, we need to see efforts (actions, not words) of self-help from you first; and once we start helping you, we need to see evidence that you are gathering more power of independence as you grow.'”

--"[P]arenting is a lasting commitment -- to be there for your children whatever their age, not only in constant love, but in times of need. Life is an unpredictable journey, what Thomas Wolf called “the groping accident of life,” where happenstance for good and ill plays a huge role in the challenges that arise and must be met. It is a source of security to know that membership in family is life-long."

To end this post on a more mundane note, here's a chart reflecting a study by Pew Research Center on the change since 2005 of the percent of us who are helping to support our young adults.

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College Costs: Are your kids getting your money's worth if you help pay the bill?

Many of us are called on to help out with the college bills for our emerging adults--and many of us agree to pay our children's way, no questions asked or raised. Or we may be asked or want to help--after the fact, as those college loans come due.

Our generation has operated under theory that a college education for our children is worth the financial sacrifice--hence the temptation and wide spread practice of helping with tuiltion as well as room and board if we can. Recent news stories have been surfacing that suggest some kids who have to borrow to go to college are questioning whether that higher education is worth encumbering themselves with debt only to find no job in their field when they get out of school. A sobering thought and one that has some reality behind it.

A recent study that relies on 2008 data reinforces our orginal beliefs. It finds that although college costs more in this country than others, the payoff is bigger. [See Sweden]. This graphic from Planet Money tells a good part of the story.

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Notes

*Data for Japan are from 2007.

Source: Organisation for Economic Co-operation and Development

Credit: Lam Thuy Vo / NPR

A few notes:

The data come from a recently published OECD report looking at educational data around the world. The cost of education includes tuition fees and living costs paid by the student, as well as earnings that students forgo by not working while they're in school.

"Benefits" is the difference in lifetime earnings between someone with a high-school degree and someone with a college degree.

For more on the difference in earnings between men and women in the U.S., see this study from Indiana University.

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Money Matters: The means to help our grown children

This little graph explains a lot. Despite the devastation of the recession and the lingering downturn, many of us with grown children are willing and able to lend or gift our kids money--to pay off debt, to get a start in life. Yes, our 401ks suffered in the 2008 debacle; some of our homes are underwater [literally--thank you, Hurricane Sandy] and figuratively). But evidently, our wealth has been coming back or it survived the hard times. According to a recent Pew Research Center survey, we of the baby boomer generation suffered less--lost less wealth than other groups and overall--in terms of financial loss--are in much much better shape than our 20- and 30-something children.

Why did the Great Recession hit households headed by grown kids in their late 30s and early 40s so hard? The federal Survey of Consumer Finances suggests it gets down to housing. For most Americans, equity in their homes represents the bulk of their wealth. The collapse of housing values in the middle of the past decade sent personal wealth into a nose dive for just about everyone, regardless of age. Overall, though, the Consumer Finances survey found that median home equity—the fair market value of a home less the amount of the outstanding mortgage and other liens—fell by about a third (32%) from 2007 to 2010. And U.S. Census data released in June found that most of the decline in median wealth between 2005 and 2010 can be attributed to sinking home values. We who've owned our homes longer and paid off more--if not all--of our mortgages, are coming out of the Great Recession in better shape.

All of which translates into a fuller bank account and the wherewithal to be generous to our grown children, should we choose to be.

Lending Money: The family fund that offers a helping hand and a living legacy

Many of us want to make things easier for our grown children--pave the road for them with a little help here and maybe even a lot of assistance there. That is, if we have the wherewithal to do it.

Recently, the New York Times weighed in on the issue, taking as its news cue presidential candidate Mitt Romney's remark, "I have inherited nothing." The initial point Times writer Ron Lieber makes is that a living inheritance comes in many forms. "It exists along a range from the free room and board for a 23-year-old intern to a stay of years for a 43-year-old single parent who has lost a job or recently divorced. The contribution can be as small as a first month’s rent or as large as the 25 years of payments that many parents now make on college loans they took out so their children would not have to."

The larger point is that the harder a young adult has to work to make the next geographic, career and economic step up, the more difficult it is to make that step. And repayment of student loans--a crisis that is raging among college graduates, both recent and long-time--is one of those hurdles that can keep a grown child from making that next step up. "The lack of any family help can have a compounding effect on the millions of people who have negative net worths well into adulthood thanks to their student loan debt," Lieber writes.

Meanwhile, even as college costs rise, today's economy is marked by a distinct lack of opportunity for college grads to move into career jobs that pay enough to cover living expenses. And that's why so many of us are helping our grown children. Recent data shows that  nearly 60 percent of 23- to 25-year-olds report receiving some kind of financial assistance from their parents--even when it's sometimes a stretch for the parents. As one 70-year-old parent told Lieber, he didn't want any of his three children "to go so far downhill that they’ll never get out.” In other words, those of us who can afford it are, in effect, trying to guard our children against downward mobility.

Lieber ends his piece with a suggestion for providing family funds for college students: a loan pool set up by the family. He noted that George Lewis, an 82-year-old lawyer in Quincy, Ill., along with his nine siblings set up an education fund in honor of his grandmother who "had a strong belief in education." Today, the nearly 50-year-old fund, with holdings of $111,000, lends money interest-free to scores of members of the extended clan. 

SInce that piece ran, Lieber has updated it with other examples of family funds. Some of the examples are of fairly prominent people--Berry Gordy (the founder of Motown Records), for instance--who set up family funds to lend money to the upcoming generation. But one made it all seem within reach to the non-prominent among us. Lieber reports that Suzette Haden Elgin, in a book called “The Grandmother Principles,” offered her own notion of a family loan fund that grandmothers can initiate. She suggests asking for a small deposit from everyone in the family, including children. Having the younger ones pitch in can help give them a stake in the process and a reason to track the fund’s growth and its beneficiaries.

Put that way, it doesn't seem so formidable and even has the frisson of bringing the family along on a daring step toward the future.

 

Money Matters: How much do we tell our grown children about our finances?

Cathy and Ben had to make a key financial decision: how much of his paycheck was he going to apportion to his 401k. Ben had been unemployed for five months, and now had a new job that would be paying him less--by about 30 percent--than his old job. How much could they put into a retirement savings account and still have enough cash to pay the their monthly bills? So when Cathy brought up the subject of the 401k while Ben was watching a baseball game with his 21-year-old son, Ben balked. "I don't want to talk about it now," he told Cathy. When she persisted, he was franker: "I don't want to talk about in front of [my son]."

"This is one of problems between me and Ben," Cathy says. "He's uncomfortable talking to his kids about family money. I think they should know. I don't see why it should be a secret."

This reluctance to discuss family money matters has been going on since Cathy and Ben's son and daughter reached young adulthood. When they were college bound, Cathy wanted to level with them about what she expected them to contribute to college costs. Ben said nothing, preferring to pick up the whole tab. A few months ago, with one child out of college and the other in his senior year, Ben lost his job. Cathy was frank with the kids: You can no longer expect any financial help from us. Ben once again evaded the issue. He didn't want his children to feel the weight of his job loss. Costs for his kids were the last thing he would trim from his budget.

Cathy sees her tell-it-like-it-is attitude as part of her midwestern heritage. She grew up in a small city at the edge of farm country. Where she comes from, she says, people were frank about everything, including money. Ben grew up in a sizeable city. His father supported the family of four boys in a style that was more than comfortable. Ben's dad never discussed finances with or around his children, and Ben is carrying on the family tradition.

He's not alone.  Martin Kurtz, former president of the Financial Planning Association, says most families have trouble talking about money. "There's no way to talk about it and not have emotion involved," he says. "It reflects our personal belief system." And when young adults on the cusp of independence are involved, it's even harder to sit down and chat about family finances. "When your child is heading toward become independent, you're transitioning from the end of one thing and the beginning of another," he says. "It's difficult because parents don’t want to give up control around money."

On the question of the 401k, business was as usual in the Cathy-Ben household. Their son left the room so Cathy and Ben could make a decision. But as soon as Ben left town the next day on a business trip, Cathy talked to her son about the issue. "He--and his sister--should be more familiar with how our finances work. By hearing us talk about it, he'd have a better idea how to set up his finances when he starts a family."

Sounds like a no-brainer, but not many of us are comfortable doing it. And those of us like Cathy who are usually end up having to do it alone.

Money Matters: A friendly dispute over who's picking up the dinner check

I asked a friend: When did you stop picking up the tab for your kids--for their flights home for the holidays [her sons and their families live on the other coast], for dinners out and for tickets to go to the movies. Her answer was definitive and simple: "When they started earning more than I do."

I was thinking about that on a recent weekend visit to Uber son. Usually we fly up on a Friday and my daughter-in-law makes dinner for us all. On Saturday we offer--come close to insisting--that we take everyone out for dinner. If the family is too tired or one of the Grands too restless to sit in a restaurant, Paterfamilias will go out and pick up take-out food. A fair enough division of labor and a nice balance of the costs of feeding a family of seven--five of them, two of us.

On this particular weekend, we flew up on Saturday. We were going to spend all day Sunday watching two of the three Grands play in soccer tournaments and then fly home on Monday. Saturday being Saturday, PF as usual insisted, cajoled, requested we go out for dinner. Everyone was in the mood for it and off we went to their favorite Thai restaurant. But when the check came, Uber son grabbed it. PF fought him for it. A friendly tussle but Uber son was adamant--and his arms longer. PF fell back to his second line of offense: Let's split it. But Uber son was having none of it--not even when PF made a dash for the cash register and tried to add his credit card to the one our son had proferred in payment.

We know we're supposed to let them treat us from time to time, to be graceful about letting them know they are growns up now. But this seemed awkward. After all, we had insisted on going out for dinner and now here was our son stuck with a dinner check for seven.

The saving "grace" came right after dinner when we drove over to ye olde ice cream shop and Uber son allowed as how the dessert treats were on PF. Reversal of fortune, and  tip of the balance--or re-balancing-- between father and son.

Money Matters: A saving plan for the grand kids

We've been squirreling money away for our Grands. We started out by putting money into 529s, but the 2008 recession and the follow-on downturn in financial markets have discouraged us from plowing more money into that vehicle. I've opened savings accounts for each of them. The interest rate on those accounts is, like the rest of the investment firmament, discouraging. Those accounts are not even keeping up with inflation--but at least the money isn't melting away into the downs of the stock market.

The idea behind my and Paterfamilias' savings for our four Grands is simple: We want to make sure there's some money there for their education. Their parents will bear the bulk of that burden; maybe the Grands will have to take out loans to finance some of it. But we hope our little bit will take the edge off  the cost. Our parents did that for our kids--every birthday they sent a small check to put in an account for the kids. The wonder of compounded interest made those accounts a help when the college bills started rolling in. It's a role model we plan to emulate. But how to do it in today's difficult financial time?

PBS's new Web site, Next Avenue, which aims to cover financial (and other) issues of concern to those of us moving further along the age continuum, currently has a video with the heady title, "Saving for Your Grandkids." You can link to it here. It won't give you answers to or even ideas for the investment questions we're all wrestling with, but Ric Edelman offers very generalized caveats and options for those of us who want to put money away for our grandkids.

My take-aways from the video:

You can set up ways to save for their education or to save for their retirement. Few of us think about the latter. (How to do it, he doesn't say.)

Whatever plan you create for the grandkids you have, be sure you can replicate it for grandkids that might come along in the future. Fair is fair, even if someone's a latecomer.

 

Money Matters: Our college grad's expenses are our expenses--our worry too

Will the surveys never stop? Here's another one--this time from Ameriprise Financial--on how generous we baby boomers are toward our grown-up children--and how worried we are about their future financial security and ours.  

A December 2011 survey of baby boomers with $100,000 or more in investable assets reports that nine out of ten--93 percent--say they have provided some kind of support to their adult children. Paying for --or lending money for--college tuition comes in at 71 percent; help in buying a car, 53 percent. Parents are also helping with the upkeep of life's many expenses, like helping to pay for car and health insurance, rent and utilities.

Where does the money come from? 45 percent take it out of their spending money; 35 percent hit their regular savings accounts (about 8 percent tapped into retirement accounts) and nearly 15 percent take out loans to help their kids.

At the same time, more than one-third--35 percent--are worried that their children haven’t learned to manage money responsibly. More than that--nearly half--say their children don’t understand what it takes financially to prepare for retirement--even as they report that they are spending what they should save on their adult children.

As to those adult children at the receiving end, the survey found that more than half of them point their fingers back at their parents: they say they rarely or never talked to them about how they budget the family’s money.

Should we be surprised that kids coming out of college today are drowning in student debt? Or what the New York Times recently headlined as A Generation Hobbled by the Soaring Cost of College