Young Adult Children & Money

[Aus_E_Expat]

I will explain my dilemma below and hope that some readers can offer some useful comments.

I am well and truly financially independent and did have a short stint at retirement but currently I am working again on a new project for “one more year”.

I have 2 daughters (25 and 19) and am trying to work out whether or not I should;

1. give them some funds to invest (could be in an apartment or shares/managed funds); or

2. continue to hold the funds myself and invest them in my own name (notionally segregated from my other funds) and then give them to the daughter at an appropriate time (Marriage? Birth of child? Specific age?).

The amount I am thinking to gift them is $200,000 each but I could also loan them another $250,000 each (for example if they buy an apartment).
The dilemma is;

(a) daughter 25 lives at home, has started 3 university degrees but has never finished any of them (she currently has 1 semester left to complete one degree but she has deferred again), she has undertaken various low level part time jobs but currently has no job and lives on cash handouts from me;

(b) daughter 19 lives at home, is currently half way through university (and is doing extra subjects to finish her degree earlier), works a couple of part time jobs;

do I treat them equally or adopt different approaches to each one?

I think daughter 19 probably could invest and manage the money (but she is only 19) but I am concerned daughter 25 will squander the money (if the money is going to be squandered on partying etc, I would rather squander it myself !!!).

Some additional information – both daughters will receive an inheritance of $40,000 from their grandfather in the next few weeks (the estate is being wound up now). Should I use that as a “test” to see what they do with that money?

BTW, the daughters live in Australia so university fees are not an issue and any gifting will be tax free.

All comments / advice welcome.

 

[Bamaman]

We always try to treat all of our 3 children equitably. One of ours has an accounting degree and is trustworthy, but the other two are not. Neither of the two is saving for their future. We've got to setup a trust account for the irresponsible two.

You might for now separate funds intended for the girls, and make investments "for them." They're both young and there's plenty of time for them to mature.

I had a cousin that changed majors in college frequently. After his death at age 35 in a fire, we found out he had an accounting degree and was just too lazy to work. Give the 23 year old an ultimatum to finish the degree she's just short of completing, or she's 100% on her own. We cannot be enablers.

 

[brewer12345]

Your kids are not mature enough to deal with significant sums. Reconsider in 5 or more years.

 

[steelyman]

Assuming there aren’t any extenuating circumstances, there’s nothing like experiencing what it’s like to be really broke and on your own for a while to appreciate the value of money.

 

[SecondCor521]

Read "The Millionaire Next Door" and pay attention to the idea of economic outpatient care. Decide if it applies to you, and if it does, consider what the book says about that subject.

 

[GrayHare]

Do a bit of both. It will let you see how they handle the money you give.

 

[daylatedollarshort]

I second The Millionaire Next Door and reading up on economic outpatient care. Our kids always had budgets for clothes and necessities and had to earn their spending money, since at least grade school, maybe even before. They are pretty motivated careerwise and good savers as adults so I think that was the right call. It sounds like the one isn't ready for a big money gift and I wouldn't treat them unequally so I'd probably hold off, or do some kind of savings matching program.

 

[FlaGator]

I will explain my dilemma below and hope that some readers can offer some useful comments.

I am well and truly financially independent and did have a short stint at retirement but currently I am working again on a new project for “one more year”.

I have 2 daughters (25 and 19) and am trying to work out whether or not I should;

1. give them some funds to invest (could be in an apartment or shares/managed funds); or

2. continue to hold the funds myself and invest them in my own name (notionally segregated from my other funds) and then give them to the daughter at an appropriate time (Marriage? Birth of child? Specific age?).

The amount I am thinking to gift them is $200,000 each but I could also loan them another $250,000 each (for example if they buy an apartment).
The dilemma is;

(a) daughter 25 lives at home, has started 3 university degrees but has never finished any of them (she currently has 1 semester left to complete one degree but she has deferred again), she has undertaken various low level part time jobs but currently has no job and lives on cash handouts from me;

(b) daughter 19 lives at home, is currently half way through university (and is doing extra subjects to finish her degree earlier), works a couple of part time jobs;

do I treat them equally or adopt different approaches to each one?

I think daughter 19 probably could invest and manage the money (but she is only 19) but I am concerned daughter 25 will squander the money (if the money is going to be squandered on partying etc, I would rather squander it myself !!!).

Some additional information – both daughters will receive an inheritance of $40,000 from their grandfather in the next few weeks (the estate is being wound up now). Should I use that as a “test” to see what they do with that money?

BTW, the daughters live in Australia so university fees are not an issue and any gifting will be tax free.

All comments / advice welcome.

Always nice to be invited to spout off , thank you!

My take is there are two issues- 1) The best way to move them along toward responsible adulthood and 2) how to be fair so that your decisions don't affect their relationship.

#2 is easy - do the same for both, whether you do it now or after you are gone, or both.

As for #1, not so obvious to me. Oldest DD doesn't seem ready to commit and complete important things on the way to independence, so do you you want to keep facilitating that? Second in line is ready to embrace life ahead and that should be supported.

Perhaps deadlines with rewards for each of them for interim goals leading toward independence, and hold off the big rewards until later, or you're gone.

Don't know what the interim goals look like for your kids, for mine it would be completion of degree program in 4 years, a full-time job that pays enough to live on their own, etc. Maybe money for a house comes after the initial steps like a job and moving out are achieved?

Nothing simple or easy for you, good luck

 

[Aus_E_Expat]

Thanks for the various comments - all good.

It seems the prevailing view is that it terms of timing, the 2 daughters could be treated differently (eg, upon achieving or reaching certain milestones) but I should be consistent as to the amount of money given between the 2 daughters.

As further background, I already have a family trust which holds a significant amount of the family assets (about 40%). The 2 daughters are already beneficiaries under the trust but my wife and I are also beneficiaries. If I end up loaning money to the daughters, it would come from the trust but making gifts from the trust may be taxable (need to get advice on that).

 

[DrRoy]

I completely support treating them equally. Not doing so creates resentment. I agree that the upcoming inheritance is a good test and you do not need to go further than that for a while.

 

[candrew]

Your kids are not mature enough to deal with significant sums.

Assuming there aren’t any extenuating circumstances, there’s nothing like experiencing what it’s like to be really broke and on your own for a while to appreciate the value of money.

+1

Allowing a kid to become an independent adult is the greatest gift a parent can give.

 

[ckelly78z]

My 20 year old son has the same "Failure to Launch" problem where he has mechanic's ASE certifications, and a degree in diesel tech, but is currently delivering pizzas with no plans of finding a "real" job.

I sympathize with your position, because we have helped our older (25) daughter with getting a house, and a big wedding, but we aren't willing to just give him the same amount without some assurances.

I would hate to see your kids blow through a decent inheritance, but at least it isn't coming out of your bank accounts, so maybe let this be a litmus test.

 

[iloveyoga]

In my limited experience with giving or loaning money....it has not been very helpful to the recipient. It seems that most people do not appreciate money that they did not earn or work for themselves. I agree with The Millionaire Next Door recommendations.

 

[The Cosmic Avenger]

It sounds like the older daughter doesn't budget or save because she doesn't have to. I would either stop contributing or make it a "matching" plan, where you match/replace whatever she puts into a 401(k). If you think that even that's too much for her, or she doesn't have a 401(k) available, offer to replace in spending money what she puts into a Roth.

This way you're providing for her future without enabling her lack of fiscal responsibility. It sounds like with your family trust that might not really make an impact financially, but the point is to give her "training wheels" with respect to budgeting and saving for retirement.

Of course, you can make the same offer to the younger daughter. We're matching 100% of what our high schooler makes with Roth contributions, so that she can see the compounding at work by the time she starts working, plus we're giving her a big head start on retirement.

 

[Mdlerth]

You might want to wait a few years before proceeding

(a) daughter 25 lives at home, has started 3 university degrees but has never finished any of them (she currently has 1 semester left to complete one degree but she has deferred again), she has undertaken various low level part time jobs but currently has no job and lives on cash handouts from me;

You have convincing evidence illustrating DD's (current) level of financial responsibility. Handing her a giant pile of cash right now? Think "throwing gasoline on a fire".

(b) daughter 19 lives at home, is currently half way through university (and is doing extra subjects to finish her degree earlier), works a couple of part time jobs;

do I treat them equally or adopt different approaches to each one?

Ditto earlier comments about equal treatment, different timing

I am concerned daughter 25 will squander the money (if the money is going to be squandered on partying etc, I would rather squander it myself !!!).

Alarm bells are going off big time. I'd be mildly concerned that the money will disappear, but terrified that it will enable self-destructive activities with horrific consequences.

Some additional information – both daughters will receive an inheritance of $40,000 from their grandfather in the next few weeks (the estate is being wound up now). Should I use that as a “test” to see what they do with that money?

Test schmest. You already know what they'll do with grandpa's bequest.

You have not painted an encouraging picture of your older daughter. But I will point out that people change. We don't stay young and naive forever. Give DD25 some more time to incubate. Maybe when she's DD30, she might be ready. Good luck.

 

[Aerides]

Even the most mature and established young adults would be tempted into some stupidity with a windfall gift of 200k or more. I'd keep that plan very quiet for a while now, no matter how well they handle the 40k.

If you do decide to invest it for them, now, do so silently, and wait to gift it for another 5+ years. Plan B. And I wouldn't anchor the "when" to a specific date or event or age, just...you'll know.

But do offer them all the advice in the world about the $40k inheritances they are about to receive. Hopefully you've already given them plenty of financial education while they were growing up, but if not, start now. Maybe a good start for the 25 year old to get an apartment and start life on her own, force her out of the nest a bit?

And the 25 year old is far from a lost cause. That was me, minus the handouts part. I had a good job by then, but had dropped out of college and was juggling lots of debt from stupid credit card spending. But if you had given me even a hint that $200k was coming soon back then I'd have been an even bigger twit.

 

[Jerry1]

On the treating them equal issue, understand that equal does not mean identical. We gave our oldest daughter a house. She’s responsible enough, but needed help to not live in an apartment with kids. Youngest daughter had college paid for in full. Both were roughly the same amount. I’m not too worried about exactly matching, but it’s nice that it’s close.

Youngest daughter is responsible. Nothing more to say for this thread.

Oldest daughter is responsible only to a point. When we gave her the house we insisted on her paying us back. She pays us $600 per month, which is about half of market. She has paid every month except for just a couple times in about six years now when she had some issues. She did catch up though. We keep the money separate in Quicken and use it to pay for things the house may need. Currently, the amount is positive by about $20K. Oldest daughter is married and son in law is finally doing well in his work. We’re going to sign over the house to them in a year or so. They’ve basically become independent. Point is that different things are needed for different daughters. Help your daughters the best way you can and sort out “equality” later. More important to love them equally than to worry about rounding errors in financial treatment. All that can be trued up later or in your will. Focus on helping them now in the way the need it now.

 

[RenoJay]

I like the idea of using the $40k inheritance as a test. I don’t plan to make my own kids eligible for any legit wealth transfer til they’re at least 35 and have shown they’ve truly matured, taken responsibility for their lives and fully left the nest.

 

[Aus_E_Expat]

We gave our oldest daughter a house.

We’re going to sign over the house to them in a year or so. They’ve basically become independent.

I assume by that you mean you bought the house in your name and now you are planning on transferring over to the daughter and son now?

 

[Souschef]

I will be meeting my 50 yr old son this week. He and DIL are looking to buy a house. I have a certain amount of money earmarked as TOD for him and his brother. I am considering giving him part or all of his half to help.
He is self made, never has asked for anything from me, and is very responsible.
I am very comfortable with this. it would be only 15% of our NW

 

[pj.mask]

Young Adult Children & Money

As someone not yet 35, I disagree that age is the metric to use for financial responsibility. I inherited a decent sum at 19 and maybe spent $5-10k on experiences over the next 5 years. Current me might have reduced that spend by half but it was part of a learning experience. The rest went to college costs and a savings (investment) account.

If you want to give them money I would favor cash upon graduation after a conversation about how it is to be used (I would want it to be saved for retirement, with reasonable confidence the plan would be followed through on). The people I see getting help paying for a house tend to buy more house maybe because it isn’t their money or they planned to spend $x so now they plan to spend $x+$gift.

However I’m not a big fan of giving money to young people directly because the risk of divorce - you never know.

I agree with the enabler comments and economic outpatient care.

 

[dirtbiker]

I will explain my dilemma below and hope that some readers can offer some useful comments.

I am well and truly financially independent and did have a short stint at retirement but currently I am working again on a new project for “one more year”.

I have 2 daughters (25 and 19) and am trying to work out whether or not I should;

1. give them some funds to invest (could be in an apartment or shares/managed funds); or

2. continue to hold the funds myself and invest them in my own name (notionally segregated from my other funds) and then give them to the daughter at an appropriate time (Marriage? Birth of child? Specific age?).

The amount I am thinking to gift them is $200,000 each but I could also loan them another $250,000 each (for example if they buy an apartment).
The dilemma is;

(a) daughter 25 lives at home, has started 3 university degrees but has never finished any of them (she currently has 1 semester left to complete one degree but she has deferred again), she has undertaken various low level part time jobs but currently has no job and lives on cash handouts from me;

(b) daughter 19 lives at home, is currently half way through university (and is doing extra subjects to finish her degree earlier), works a couple of part time jobs;

do I treat them equally or adopt different approaches to each one?

I think daughter 19 probably could invest and manage the money (but she is only 19) but I am concerned daughter 25 will squander the money (if the money is going to be squandered on partying etc, I would rather squander it myself !!!).

Some additional information – both daughters will receive an inheritance of $40,000 from their grandfather in the next few weeks (the estate is being wound up now). Should I use that as a “test” to see what they do with that money?

BTW, the daughters live in Australia so university fees are not an issue and any gifting will be tax free.

All comments / advice welcome.

I would cut the cord on daughter A for her own good. She only has one semester to go, she's not working, and she's not in school? What in the hell is she doing with her time? Why isn't she working? Unless she has a medical issue or something (which you don't mention, so I assume not), that is absolutely 100% unacceptable in my book. I couldn't imagine still living at home at 25. I moved out of my parents' house as soon as I was legally able to. I would quit giving her handouts so that she is forced to work for her money, and give her an ultimatum that she must enroll and finish school in the next available semester or she's out on her own. Although I'm sure this isn't your intent, you're enabling her by allowing this behavior and paying her for it.

Obviously, this is much easier said on my end sitting anonymously behind a keyboard when she is not my daughter. Certainly this is tougher to do as her father.

I second (third, fourth?) the recommendation to read The Millionaire Next Door, and particularly the part about economic outpatient care.

As far as the money goes, I would keep it in a separate account under your name to earn interest and wait to give it to them until the time is right, which I don't think now is the time for either of them (daughter A due to proven track record and daughter B due to age alone). Another option I would strongly consider is to have both of your daughters open a Roth IRA and max it out each year with that money.

 

[timemoveson]

A contemporary

OP, good problems to have for sure, so great you are considering your options fully.

As someone with a similar situation, I would use the $40K test as you suggest. This is totally outside of your control so you can observe and react to things before you make a much larger commitment with your own legacy.

Note, I have built our wealth for legacy and the kids are fully aware of what there is and what will happen down the line. However, I am "giving" them nothing extra at this point in their young adult-hood. Education, housing, light spending money help and a lot of moral support. But, no capital, no cars, no houses, no nothing until they are established in their next levels.

I believe strongly that EOC can be deadly. I also strongly believe your choice to gift has NOTHING to do with the age of the prospective recipient once they are adulting. My young-adult kids have a lot to learn but are exceptionally advanced. I'd put them up against a large percentage of "adults" any day of the week in terms of judgment.

So, it has everything to do with who they are as people. And, while "equity" is my going in position, it certainly could be flexed to accommodate different circumstances with the kids if those were in fact apparent.

 

[ncbill]

I would cut the cord on daughter A for her own good. She only has one semester to go, she's not working, and she's not in school? What in the hell is she doing with her time? Why isn't she working? Unless she has a medical issue or something (which you don't mention, so I assume not), that is absolutely 100% unacceptable in my book. I couldn't imagine still living at home at 25. I moved out of my parents' house as soon as I was legally able to. I would quit giving her handouts so that she is forced to work for her money, and give her an ultimatum that she must enroll and finish school in the next available semester or she's out on her own. Although I'm sure this isn't your intent, you're enabling her by allowing this behavior and paying her for it.

Obviously, this is much easier said on my end sitting anonymously behind a keyboard when she is not my daughter. Certainly this is tougher to do as her father.

I second (third, fourth?) the recommendation to read The Millionaire Next Door, and particularly the part about economic outpatient care.

As far as the money goes, I would keep it in a separate account under your name to earn interest and wait to give it to them until the time is right, which I don't think now is the time for either of them (daughter A due to proven track record and daughter B due to age alone). Another option I would strongly consider is to have both of your daughters open a Roth IRA and max it out each year with that money.

I would have dropped off Daughter A at our local mall years ago.

(the local mall is where all the armed forces recruiters are located)

 

[Aus_E_Expat]

I would have dropped off Daughter A at our local mall years ago.

(the local mall is where all the armed forces recruiters are located)

I have thought about encouraging her to join armed forces / police etc but I don't think they would take her now at 25 unless she had completed her degree.