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

Supporting Grown Children: Golden Handcuffs Edition

It's a wonderful feeling to be able to be financially generous to our adult children--to support them if an unexpected need arises or to indulge them so that they can do or buy something they've always wanted. If we've got that bit of extra to spare, there's a deep pleasure in seeing our children enjoy it now rather than later--when we're no longer around.

And our kids are grateful. Why shouldn't they be? We've offered them support out of love for them and respect for their ability to handle the resource well. But sometimes, there's a little less of a heartfelt thank you. There can even be resentment, especially if there are strings attached. This letter that appeared in an advice column in a local Colorado newspaper spells out the dangers of attaching those strings--even if we do so indirectly:

When I met my wife five years ago, I had no idea of her financial status. I knew that her parents had a nice home and spent a lot of time traveling but she lived frugally and worked hard. When we got married, I learned about the extent of her family's substantial resources. Admittedly, they have been very generous — helping us with the down payment on our house, taking us on family vacations and starting college funds for our kids. The issue is that they've increasingly put pressure on us to raise the kids in specific ways, build our schedules and vacations around their needs and spend money according to their values. We, and my wife in particular, have been struggling to say no because of everything they continue to give us.

The letter was signed: Locked In Golden Handcuffs

The couples coach who answered the plea from "Locked" talked about the "aging" parents and their need to feel relevant. They also focused on what was triggering the son-in-law's negative response, such as feeling a loss of empowerment, freedom or authenticity or a sense of emasculation.

Whatever it is, it's not something I would want to visit on my son or daughter or their spouses. To give is to give freely. It's their lives to live. We are not in the driver's seat--even if we bought them the car.

 

 

Money Matters: Six check-offs before you help your child buy a house

Here's the home buying news from Australia: 55 percent of first time home buyers (that's our generation of kids) got help from their parents (that's us) last year.

Here in the U.S, one-third of those 37 and younger used a gift or loan from family or friends to come up with a down payment for a house.

It's a first-world universal: If we can afford it, many of us take on that down payment assistance willingly. We may see it as a part of a “living inheritance.” That is, a chance to see our kids make good use of what’s coming to them when we're not around to see how they use it. Or, we may want to see our kids living free and clear of a landlord. Or in a better neighborhood. Or to have an investment that will grow with time.

But no good deed comes without complications. Here are  six big things to think about if you can afford to be a financial angel for their home purchase.

ONE: Family Dynamics.

There may be other family members--say, siblings of the future home owner--who feel the scales of parental largesse are being unbalanced, and not in their favor. It may be presumptuous and ungrateful on their part, but there it is. Communications about what you're doing and why--and whether the sibs can or should expect similar assistance--can keep everyone feeling fairness rules.   

TWO: Guarantees

If an adult child doesn't qualify for financing, parents may have to act as guarantors or as “co-signors” on the mortgage itself, meaning they are shown on the title as a co-owner and on the mortgage directly. Co-signing is the more common approach, but it raises several questions such as whether the parents have an actual ownership interest. There are also questions about what happens if one of the parties passes away or, if the child is married, gets separated or divorced.

THREE: Gifts

If an adult child qualifies for a mortgage on his or her own, parents can make the purchase more affordable with a gift that boosts the amount of down payment or helps lower the interest rate. No need for co-signing or guaranteeing. Write a check for any amount you choose. That's it — no contract or ongoing commitments. But gifter beware: Lenders like to see money gifts — easily traceable checks, bank transfers or wire transfers — in a borrower's bank account three or four months before they apply for a mortgage. Givers and recipients may need to sign letters confirming that the money isn't a loan.

In addition to or in lieu of down-payment assistance, a cash gift can pay all or part of an expense such as mortgage closing costs.

Here's an additional benefit to down-payment assistance: It can help new borrowers avoid paying for private mortgage insurance, which in turn helps keep their monthly payment lower.

FOUR: Loans

If it's a loan, you can still write a check for any amount but it's best to write it all down in a contract that defines obligations. Not only does that avoid misunderstandings--especially about repayment schedules--but if the parent-lender dies or becomes incapacitated, there's more transparency. All the heirs can view the transaction and its history.

FIVE Being A Banker

If we've got enough cash, we can be the mortgage lender. We can offer easier terms, like no closing costs or no down payment. We could charge a higher rate of interest on the mortgage than our money earns in a savings or money market account and still offer our kids a lower-than-market mortgage rate. But family lenders must charge at least the Applicable Federal Rate , the minimum interest rate required to keep the assistance from being considered a gift.

It's a fairly complicated business but there are companies that can help with the set-up details and provide all the forms and documents you need to meet state, local and IRS requirements. They can also guide families through the settlement and filing process.

Personally, this is too complicated for my taste. Plus, I wouldn't want to be my child's banker. Hard enough being their parent.

SIX Taxes

Anyone can give any other person a gift up to $15,000 in value (money or, say, stocks)  without filing the gift-tax return IRS Form 709 . So each parent can give each child — and the child's partner and their children — up to $15,000 each without having to complete Form 709.

Little Emperors: Complaints Chinese parents have about their grown children. It may sound familiar.

**

We've read a lot about our helicoptered kids. They're the one who, as young adults, have gotten used to their parents overseeing life's key decisions. Their parents have been spotted going on job interviews with them and even calling their bosses to complain when they believe their child has been treated unfairly in the work place.

We've also got our entitled young--and older--adults who think the world, to say nothing of their parents, should bend to their needs. These are the kids who expect--and are not particularly gracious about receiving--a parental allowance, even though some of them are grown up with children of their own. There are those who call this a "brat allowance."

Well, small world: Chinese parents have, according to a professor at China's Renmin University, "birthed a generation of freeloaders who feel entitled to leech off their own parents."

China's one-child policy is partly to blame, professor Zhang Ming writes. As he details his observations about these "Little Emperors,**" his commentary begins to sound familiar.

"Even after helping them find jobs and planning their whole lives out for them, a generation of so-called helicopter parents still feels compelled to help their kids buy a house. Lucky are those whose kids only ask for help with the deposit and don’t expect their parents to help them make their monthly mortgage payments, too."

In our country, recent surveys find that roughly one-third of Millennials hoping to buy a house will be relying on a loan/gift from a parent, grandparent or other relative to help with some or all of the downpayment.  There's been less follow-up on how many of us continue to help with the monthly mortgage payment.

Zhang Ming has more to report. When parents don't come up with the cash fast enough, the grumblings of Chinese adults

"are a fixture of social media feeds, where they whine about their parents having the temerity to suddenly go on a trip or moan about their in-laws playing mahjong instead of giving that money to their grandkids instead."

Evidently, it's woe unto the grandparents as well.

"Many grown children remain reliant on their parents for financial assistance even after they’ve had kids of their own, thereby perpetuating the cycle of freeloading into a third generation — except the grandkids don’t turn to their own parents for help. Instead, both generations sponge off their grandparents together."

 It wasn't always so. Zhang Ming says he asked many parents of these Little Emperors whether they had turned to their parents for help and support. Just like many of us tell our children or friends, those parents tell Zhang they never asked their parents for anything, not even "for a single yuan" and then, like many of us, they reel off the the challenges they overcame to get where they are today, including supporting their parents— not the other way around.

 Zhang Ming's conclusion about what he calls China's "kidult" problem:

China’s young people are paying the price of the country’s rapid urbanization drive. The high costs of migrating and living in cities have drawn multiple generations into the financial orbit of their youngest relatives, exacerbating a psychological disconnect between what is appropriate to demand from one’s elders and what is appropriate to give. The resulting emotional tug-of-war often does more harm than good.  But these reasons do not begin to explain the degree to which parents are expected to support their kids, however, or how kids came to feel so entitled to their parents’ money in the first place.

 **‘Little Emperors‘ is a name that refers to only children in China after the one-child policy was implemented. Attributed most frequently to increased spending power within the family unit and the parents’ desire for their child to experience the benefits they were denied, the syndrome results from the children’s sole command of the attention of their parents and grandparents.

 

Bank of Mom and Dad: What to do and how to do it when it's time to close the helping hand

 

Some of us tap into our retirement accounts or we delay retirement: We need the money to keep up with the relentless press of supporting our grown kids. Or grandkids. It may not be full support--just help with the rent, the cell phone bill or car payments. Sometimes it's a monthly stipend to defray their cost of living. For one of my friends, it was to pay for a major expense--the cost of a surrogate mother so a daughter could start a family. (The ensuing twins, priceless.) Another couple played venture capitalist and put money into their son's daring new business--which has since attracted real-life, Silicon Valley venture capitalists.

Whatever it is we're doing--and with whatever rationale we have for doing it--there comes a time when we want to or have to close the bank of mom and dad. The tipping point is different for every family; let us not judge our neighbor.

That said, when Closing Time comes, here are some tips from financial experts on how to tighten the fiduciary fist.

Set boundaries: One end of that boundary is to Just Say No. Make it clear that you will not provide assistance anymore. But if that isn't going to work for you--if it's too harsh or doesn't fit your situation--set financial boundaries, such as how long this will continue and how much cash will be involved. In some situations, you're doing yourself and your kin a favor. When support continues into a grown child's 30s and 40s, you may be an enabler: preventing your kids or grandkids from becoming independent and living within their means.

Make it legal: If you decide to be the mortgage banker for your grown child's home purchase, act like a bank. Have a lawyer draw up a contract  complete with dates when payments are due. Of course, you don't have to be the banker--for a mortgage or other large loan. You can walk your grown child into a bank--and even co-sign the loan (if you're sure you don't need to be paid back). That way, the bank is the debt collector, not you. Financial experts note that people are less likely to repay family members than they are a bank. Many of us do help out with the first-home down payment--not because are kids have been spendthrifts but because of student debt. Student loan debt seems to be the biggest obstacle standing in the way of young people buying their own home.

Use it to educate: However much money you decide you can afford to shower on your kin--a grown child or a grandchild--it should be a gift with no strings attached. Yes, they may squander it, but even grown children need to fall down and scrape their knees. Gifting them money that they may use unwisely is better than using your credit card to bail them out.

Get a second opinion: If you're lending money for a new or on-going business, don't limit yourself to your and your child's take on the business plan. Get an opinion from someone not directly involved in the business. And agree to specific terms--how much and when it will be paid back (if you hope to be paid back).

 

 

 

 

Observation: Cheryl Strayed and Steve Almond on supporting grown kids financially

 

Writing on The Sweet Spot, Cheryl Strayed and Steve Almond tackle a question from a reader about financial support for their grown children and if it's fair to withdraw that support while they are still dependent on the parents. 

Cheryl Strayed:

You’ve been deeply generous because you wanted to provide your children with an education, security, comfort and ease. Well done. Now you must be deeply generous in another, seemingly paradoxical way: by giving your grown children the gift of independence and self-sufficiency.

They don’t pay for their own way in the world for one reason and only one reason: because you do. I encourage you to stop doing it. Allow your adult children to find a way to do it instead. And allow them to struggle with doing it.

By providing all that you provide your kids at this point in their lives, you’re preventing them from learning how to problem solve, sacrifice, persevere, and suffer and benefit from the consequences of their own decisions. In other words, from becoming adults.

Steve Almond:

The reason it’s been challenging for you to stop paying for your kids is because it’s a reversal of the way you’ve operated since your kids were born. They needed something, and you paid for it. That made sense for a time. But it doesn’t make sense now, and it hasn’t for a while. Your children aren’t children anymore and they don’t truly need you to pay for their lives, even if they find it convenient that you do.

 

Part of being a good parent is modeling healthy boundaries for our children, and this is ultimately that. In establishing yourself as a person who knows and states her limits, you’re showing them how to do that too.

 

Bank of Mom and Dad: Five tips for handling gifts or loans to grown kids.

We are our children's bankers--at least we start off that way. When our children are young and living under our wing, we try to teach them the value of money and how the financial world works. How else will they grow up to make responsible financial decisions.

Despite our best parental advice, they may start their independent lives off fiscally wobbly--wobblier than we were at their age. They may have hefty bills to pay: college and car loans and smart phone services. The world we came to independence in may not jibe with the financial experiences our young adult kids are having today.

All of which begs the question: At what point should we expect our children to be self-sufficient? When does the Bank of Mom and Dad close? It's an emotional as well as financial question.

Financial planners and advisers generally stick to the fiscal side of the equation. So let's do that as well. First up is the question of whether we can afford to keep the bank open. That is, can we help our kids without impoverishing ourselves or stripping our retirement savings. If we clear that hurdle, here are some tips from the experts that we might not have thought about.

 Set clear expectations: Have a heart-to-heart with the bank's "client" about what we are prepared to help them with and to what extent. If it's ongoing support, the bankers should set a time limit for how long we'll keep doing this. We might ask them to make a contribution rather than giving them all of what they need.

Act like a banker:If our child went to a real bank to borrow money they would need to disclose their assets, debts, income and expenses so the bank could decide whether to lend or not. No reason why the bank of mom and dad shouldn't do the same. We need to understand why our child is in the situation they are in. If we expect money to be repaid, we need to know how likely it is that this will happen.

Get legal advice for large sums: Payback disputes happen. To avoid them , have a written loan agreement. If your adult child has a partner, there may be legal issues if the relationship ends. Will the loan or gift become relationship property? These are some of the issues that need legal advice.

Consider your other children:They ought to know upfront about what help we are giving their brother or sister and why. Sibling rivalry exists, and your other children can feel deeply hurt by being treated unequally unless they understand the reasons. You can address the equality issue by making adjustments to how you divide your estate, taking into account prior assistance.

Complications if there's a divorce: It's a remote possibility but a possibility nonetheless that if we consistently --that is on, say, an annual basis--gift our child money that improves the family’s lifestyle, it could effect support obligations if the marriage falls apart. In a Canadian case, a judge considered those gifts to be part of the son's income for determining support obligations.

 

 

 

The Bank of Mom and Dad: Who pays your grown child's rent?

Surveys on parent-child financial relationships are often run by or at the behest of banks or other financial institutions. They've got a particular reason to understand what's happening financially to the generation that should be forming households and buying homes.

That's what makes this most recent study so interesting. It's by analysts at the New York Times (informed by a data set known as the P.S.I.D. Transition to Adulthood Supplement.) It found that almost half of the people in the data base in their early 20s reported that their parents help them pay their rent. Among those who get help, the average amount is about $3,000 a year.

For some, the dependence stems from difficulties in finding a stable career job. For many others, it's a Big Expensive City issue. Skilled work is increasingly concentrated in high-rent metropolitan areas, and salaries aren't in sync with rents. Help from the Bank of Mom and Dad is a means to staying on the job in order to move ahead.

 Some data bits from the study:

The average amount of parental help for the 20-somethings — roughly $250 a month — covers 29 percent of the median monthly housing costs in America’s metro areas.

Twenty-somethings who work in farming, construction, retail and personal services tend to get the least parental assist; those in the art and design fields, the most--an average of $3,600 a year. In part that's because of the high barriers into fields like art, education, health and law.

Young people in metro areas with a million or more people are 30 percent more likely to receive rent money from their parents--almost twice as much money-- than those in smaller cities.

In the 1980s, fewer than half of 20-somethings received any parental support; by 2010, nearly 70 percent did.

Living expenses account for only 20 percent of the help that parents give their children. According to the survey, the bulk of the support comes in the form of lump-sum gifts for things like a down payment on a house or capital to start a business.

Little did we know--and a point the survey makes--is that being able to reassure our kids that the Bank of Mom and Dad would be there for them influences the  decisions they make--from what to major in in college to the career they choose. It's also a reminder that economic advantages begin at home and continue as kids grow into independence.

 

Money Matters: The unintended consequences of overextending a financial lifeline

original photo: Palo Coleman

The call came to Paterfamilias. A friend asked if PF could look at his son's resume and counsel him on his job search, a search that wasn't going well. After graduating from college--the first in his family to do so--the son came home to live with his parents but didn't seem to be doing much to get a career job. He did some occasional waitering thanks to his dad's connections, but three years into his post-graduate life, the son seemed to be do little more than fiddling with his smart phone and raiding the refrigerator. The dad was frustrated and thinking of telling his son to move out and support himself.The son is not alone. Lots of twenty-somethings are returning home after college (nearly half of the post-college Millennials who responded to a TD Ameritrade survey in May said they had "moved back to my parents home after college."). Some are failing to launch, with their parents providing financial assistance longer than they expected or intended.

There are times when the helping hand (even if it's just room and board) is in order and affordable. Every family's situation is different, but wherever we fall on that continuum between supporting our kids and insisting they stand on their own, there are consequences to our provisions of assistance.

Some are obvious, like the possible financial strain on our checking or savings accounts. What's being spent to pay an adult child's rent, to feed and clothe them or foot their cell phone bill is money that could be used to pay our bills or be squirreled away in a retirement savings account. When financial assistance goes out in small increments rather than one big lump sum, we may lose track of the negative impact.

Even if we can afford to provide the support, by paying their bills we may be enablers in delaying their ability to function independently and prioritize between "need" and "want." Living at home free of financial responsibility or depending on mom and dad to pay for  upkeep eases a necessary burden of responsibility.

There's another unintended consequences that may not be as clear: The impact on the family dynamic. On some level, a body of psychologists tells us, our kids equate gifts with love and when we help one of our children, the others--even if they are doing well financially--may feel we're playing favorites. To ease that tension, we may want to make offers of help to our other children. Or at least an explanation of what we're doing, why and for how long,  and whether it will even out in the end.

 

 

 

 

 

Bank of Mom & Dad: We make irrational decisions about helping out our kids. But there's a reason for that.

Financial advisers tell us to squirrel away money for our retirement, and yet we spend it on our adult children--paying their cell phone bills, letting them live rent-free in our houses. Friends (especially those without children) are shocked (shocked!) when we give a grown child a lavish gift or pay one of their outstanding bills.

Yes, it may not make financial sense; it may run counter to a life-long parenting goal of our children becoming independent adults.  Yet a recent outgrowth of economic thought understands why we do it: It has a whopping pay off. In short, it makes us feel good.

The slightly longer answer goes like this: When it comes to money, the getting and saving matter--how much longer we need to work; how much money we need to keep in an emergency account. But so do emotions. In the long run, they may overwhelm our rational judgment about long-term goals, but they also bring us happiness in the here and now. For some of us, there's a deep pleasure in paying off a chunk of our kids' college debt or car payments or offering a wad of cash for the down payment on a first house. (For that matter, putting aside money in an emergency account doesn't make all that much sense, but it does bring us comfort to know it's there.)

As parents we are more than a spreadsheet and by-the-book counselors.

In his financial blog Michael Kitces points to research and makes a point about money and happiness:

Yet contrary to the conventional wisdom that “money can’t buy happiness”, a recent new book entitled “Happy Money” by researchers Elizabeth Dunn and Michael Norton suggests that there may be far more opportunity than we realize to derive greater happiness by changing the ways we spend our money. How we spend – on ourselves, and others – really does impact the enjoyment and emotional well-being we derive.

In fact, the research of “Happy Money” suggests that sometimes, the best things we can do to improve our happiness may lie in not trying to maximize our wealth, but instead focusing on experiential purchases (rather than “stuff” that appreciates in value), spending money to buy time, and even spending money to support family and relatives instead of ourselves (which may not be cost-effective, but can be remarkably happiness-effective!).

 For more on the the latter point Kitces raises, see my post : "Can we afford to share our wealth with our grown kids in the here and now? There's a way to measure that."

Related articles

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Leaving a Legacy: Should we take care of them or should they take care of us?

How to Buy Happiness | Gregory B. Knapp

Bank of Mom and Dad: The helping hand and its role in sibling rivalry

When my mother died, she left all that was left in her estate to me. But that didn't lessen my resentment of how my brother had, when he was alive (he died before my widowed mother did), talked her into giving him access to her savings accounts and squandered two thirds of it.

Whether we need the worldly goods or not--I was fortunate in not--there is something primal about the resentment we feel for a sibling if our parents treated them more favorably than us.

I bring that up lo these many years later because Paterfamlias and I--and our friends--are now the older generation, the parents of the grown children and, human nature being what it is, many of us are probably tilting more toward one child than another, helping out a child who may be struggling financially and not offering equal rewards to one who is not. The common sense of our actions may be apparent to us but not necessarily to the child who's not getting his or her share.

At least that is a point raised in a recent British publication, The National. After ranting a bit about parents who favor the "weaker" of their children over the more successful one, the author sums up research that has a surprising kick to it:

"Research in the United States found that parents helping their young adult children financially was linked to what it called a "solid parent-child bond" that got stronger the more money is given. I found it surprising, and disturbing, that money was a bigger issue than emotional support and affection. Other research states that sibling relationships were not affected by preferential treatment, like affection, as long as they were given the same amount of money. Give one more money than the other and you’re condemning siblings to bad relationships with each other later

So it turns out that our adult children are sensitive to inequality just as they were when they were small children living under our roof.

The answer to the issue is not necessarily to change our ways or even the scales, but to let our kids know what we're thinking and get input from them. In the best of all possible worlds, their reaction will be like that of a friend of mine's son who told his parents he was fine with their helping out his sister and that they should feel comfortable leaving the bulk of their worldly goods to her. He and his wife both have MBAs and high-paying jobs.. They are more than able to support their two children and send one who needs an extra boost to private school  The sister holds a low-paying job (she's a social worker) and her husband, who lost his job in the 2008 recession, has been unable to regain his footing. They are struggling to support their twin girls. It is a relief to the parents to know that they are providing financial help to their daughter without their son resenting it. (Not knowing when the need for that help will end? Relief-less.)

According to Megan Ford, a therapist and head of the Financial Therapy Association, the biggest reason parents offer adult children financial help is that they are struggling due to a job loss, divorce or the pursuit of a career path that’s meaningful, but not lucrative. Also high on the list: providing assistance to a child who is disabled or has special needs or is dealing with addiction or mental health issues.

The National's author has this advice for those who are not even-handed in handing out or leaving money to their grown kids:

"Talk about it with your family, explain what you want to do, why, and that you realise it affects everyone. You might be surprised with the different takes on what you’re proposing. And most importantly, talk about being fair. You want to be fair don’t you? Find out what that means to everyone, not just what it means to you."

 

Related articles

Bank of Mom and Pop: Wherever they are in the world, parents like to offer their grown kids a helping hand.

Bank of Mom and Dad: The trend line on supporting grown children

Leaving a Legacy: Should we take care of them or should they take care of us?