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Old 08-11-2010, 11:54 AM   #21
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My parents helped with my very, very low college expenses but never helped me buy a car (I bought my first car at age 23) or a home. They gave me a token amount to help with the wedding costs. They had the money to do more, they just didn't feel the need to.

DW's parents helped her buy her first car at age 16 (though she had to pay back some of it) but didn't help with college expenses or buying a home (again, they had the money to help her, but didn't feel the need to). They gave her about $10K for the wedding but the strings attached to that money ended up costing us more than what they gave DW, so the $10K didn't really help at all.

Our financial struggle in college and graduate school forged our characters. For us, living under the poverty level for a few years and making mistakes early on like using credit cards as an easy way out of money problems really gave us the best financial education we could have hoped for. It also gave us a lot of drive to succeed. Counting your pennies to see if you can afford to eat is no fun.

We don't have kids, but I am setting aside a little bit of money for my only niece. I will give her the money (probably no more than $10-$20K) to help pay for college or buy her first home. I refuse to subsidize a car purchase or a wedding.
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Old 08-11-2010, 12:16 PM   #22
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My sons were on their own at 16. I would have preferred that it had been later, but 16 was when they were tired of Dad rules and wanted to make their own.

They are both very very successful as men and as earners, so though I don't know that their early independence created this, it clearly did not prevent it. It also doesn't seem to have pissed them off at me, perhaps because we didn't really go through any period of conflict or unwelcome advice about their life choices.

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Old 08-11-2010, 12:32 PM   #23
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We are prepaying our two sons college tuition and we have a deal with them that we will buy them their first car, $2500 limit. They can get a junker at 14 and fix it up or get a junker and 16 and not. Up to them, but they have to do most of the work to fix the car up. This is mainly because we live in a very rural area and cars are a necessity to get a job. No busses, no taxis, way to far to bike or walk and I sure as heck am not going loan them my truck!

That's all they get. Other than some pizza money now and then or helping them make up a couple hundred bucks to pay for books or something, they need to get a job, a loan, a grant, a scholarship or marry a rich older woman, to pay for any other school expenses. They both know that once the turn 18 and graduate high school they will be expected to either go to school, join the military or get a job and move out. Funny thing is, they have heard this message since they were old enough to understand it, and at our 12 y.o. is accepting, our 14 y.o. is eager.

We believe that while they don't stop being our children at 18, they do stop being children. They are adults. We never understood the people that have put off their hard earned retirement to continue to work to pay their kids way through school or continue to cloth and feed them and let them live at home until they are "ready" to move out. We all have responsibilities to take care of our children, but isn't allowing, encouraging, even forcing them to become adults and take responsibility for themselves part of that? Should we deny them the satisfaction of working hard, struggling and finally succeeding like we have by enabling their continued dependency?

Human nature is such that we take for granted those things that are given to us and cherish the things we earn. I would bet most kids would strive a little harder if failing a class meant paying for it again out of their own pocket. They will appreciate the accomplishment all the more and take pride in it. Paying their own way through school (or a substantial part of it) will prepare them better to handle the day when mom and dad aren't willing or able to help.

Besides, what makes their needs as adults more important than yours? Why does their success, happiness and security take priority over yours? Why do they get to lounge around in college (and let's be honest, college isn't anything like having a job and the responsibilities that come with one) while you work hard to support them? Heck, statistics show that not only are you shortening your retirement on the front end, but shortening your life on the back end by working longer.

I say don't do it. Let them take care off themselves. Sure, it will be hard, but that struggle is important. It helps them appreciate their success and value their earnings. Besides, if FIRE is important to you, set an example for them and do it. Show them what a little struggle, hard work and perseverance can do for them.
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Old 08-11-2010, 12:48 PM   #24
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BigNick, you'll have to answer your questions on your own. I can provide you with my tentative plan for what I'm going to spend on my two daughters (currently age 3 and 5!).

We hope to be able to save enough for college tuition in a dedicated college savings account (529 plan here in the US). Room and board, books, transportation, etc will be funded from some combination of loans, work study, scholarships, grants, summer jobs, and if need be, money from us.

There may be something like a $5000 used car in there somewhere for the kids to use, maybe keep after college. There's a good chance it would be whatever car(s) we buy in the next 5 years or so.

After college, we will play it by ear. The plan is to set aside something roughly equal to $10000 or so in today's dollars for each kid to cover things like new house, apartment deposit, wedding expenses, etc. Let them figure out what they want to do with it and spend it however they would get the most value out of it.

During their adulthood, we may pay for some family vacations with them and (if they arrive) grandkids if the portfolio travels on one of those upward trend lines in FIREcalc and we can afford it.

That's the plan anyway. No lavish spending planned for our daughters, although the scope of what we are paying for has greatly increased over the 5 years since our first daughter was born. My thinking is that we are lucky/smart enough to have acquired all this wealth. We might as well spend some of it now when we can see the fruits of our labor instead of leaving it all to our heirs in a bequest and never see the happiness that it will bring to those we care about.

If I were in the OP's shoes, I don't think I would work an extra 2-3 years solely to fund a $100,000 per kid honeypot (above what is already being provided to them).

I like Nords' idea about helping fund tax-deferred savings in the initial years out of college. I have always been able to max the IRA's and 401ks straight out of college, but I understand that is not always feasible given the different trajectories people end up on. If we could afford it we would probably help in this way as well.

We don't want to end up in the position of expanding the lifestyle and expenses of our kids such that they rely on us to fund their spending. But I think helping fund tax deferred savings plans during the initial years of a career when salaries are lower wouldn't necessarily be artificially enlarging their lifestyle as long as the help is clearly marked "temporary". This kind of help would really depend on whether our portfolio is growing more than we think we will need. It would essentially be an inter vivos gift that is more tax efficient instead of leaving it as an inheritance.
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Old 08-11-2010, 02:12 PM   #25
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I didn't specify this in the OP - I hadn't thought too hard about it - but if we put 100K into a home down payment or a business startup, it wouldn't be a gift. We would keep the equity.

One thing which I know is affecting my thinking on that is what happened to slightly older of ours. Their DS got married and our friends put quite a bit of money towards their home. The marriage went bad and when the house was sold, their daughter-in-law ended up with half of what the parents had put in. So, married or not, if son and partner get a 300K home and we put in 100K, it will be our 1/3 of the property, duly notarised, not a handout.
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Old 08-11-2010, 02:28 PM   #26
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So, married or not, if son and partner get a 300K home and we put in 100K, it will be our 1/3 of the property, duly notarised, not a handout.
As Nords pointed out above...

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All of these discussions boil down to one common denominator: you gotta know your kid and what they're likely to decide to do as a result of your decisions.
You should know your kids better than anyone else, but one very common personality trait of children is to look at this type of "investment" by parents is as a gift under an assumed name, regardless of the attached strings. If you felt the need to exercise your rights regarding your investment at some point in the future, there is a real possibility it will cause problems between you and your son.

Just sayin...
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Old 08-11-2010, 02:33 PM   #27
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It seems like most responses are the same... and it is probably what I am going to do...

Pay for undergrad as long as they are going to get one in 5 years... have a used car during that time and they keep it... a small amount to get them into an apartment... no grad program.. no coming home to live... no bailing out bad decisions... my wife might have different views as we have not discussed them...


I had a niece that went on to get her law degree... I helped her out since I was not married at the time... I think it was around $10K... maybe more... her younger brother was not so fortunate as I got married and his graduate program is all on him...


Reading your last post... that makes a difference... as long as you charge interest etc. That is what my mother did... she loaned for downpayments on house or other things.... but charged interest at a higher rate than she was getting on her CDs....
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Old 08-11-2010, 02:36 PM   #28
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Pay for undergrad as long as they are going to get one in 5 years... have a used car during that time and they keep it... a small amount to get them into an apartment... no grad program.. no coming home to live... no bailing out bad decisions... my wife might have different views as we have not discussed them...


TP, you are a riot!
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Old 08-11-2010, 02:38 PM   #29
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Interesting

Im laughing because for me it went the other went the other way. I was avery profitable investment for my parents. I won scholarships to college and paid my own way though law school. I won a legal dispute for my mother, Sold a house for them for far more than they thought they would get and negotiated a gold plated book contract for my father. All in all I was an extremely profitable child even if you take the entire cost of education and upkeep. I'm hoping for the same from my kids, but not counting on it.. My youngest just took the bar exam. The older one is on a Ph.D. fellowship so no complaints.

I was very moved by the description of the people with handicapped children. there are a number in my extended family. Sometimes it takes a village.
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Old 08-11-2010, 02:54 PM   #30
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I didn't specify this in the OP - I hadn't thought too hard about it - but if we put 100K into a home down payment or a business startup, it wouldn't be a gift. We would keep the equity.
If my parents had approached me with such a deal-owning part of my home-I'd have said thanks, but no. Sometimes those strings turn into ropes.
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Old 08-11-2010, 02:59 PM   #31
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[QUOTE=Keim;966649]I suggest the OP read Thomas Stanleys "Millionaire Next Door," paying special attention to the section entitled economic outpatient care. It discusses the negative impact of helping your kids too much.QUOTE]

+1. Specifically chapters 5 and 6.

I had never considered the possible outcomes as being negative. But after reading their findings it is very interesting. Unintended consequences.

Example: Gift enough money to help your kids out with that bigger house in a nicer neighborhood. You know, the one that is like the home they grew up in. Next thing they have to deal with is keeping up with the property taxes for this house that was bigger than they could afford on their own. Also insurance. Then they have the pressure to keep up with the neighbors purchases for a neighborhood they could not really afford. Etc. Next thing you know your economic outpatient care goes well beyond just the original gift. Or you put your kids in a bad position financially. Again, all unintended.

I've not been through this yet. It's probably going to be hard to provide tough love on some things and watch your kids struggle in the beginning. But there is a certain pride found in getting through the struggle. That's what most of us have done. Right? We didn't start out in that big house. We didn't start out being gifted seed money for our brilliant business idea.

In the end I may cave. I'll certainly be there for emergencies. But I think its best to resist the temptation to help beyond college. Let them find there way.

Great topic. Thanks OP.
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Old 08-11-2010, 03:01 PM   #32
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If my parents had approached me with such a deal-owning part of my home-I'd have said thanks, but no. Sometimes those strings turn into ropes.
Isn't that usually the parent's goal? Scary to let your pet off the leash.

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Old 08-11-2010, 03:07 PM   #33
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You should know your kids better than anyone else, but one very common personality trait of children is to look at this type of "investment" by parents is as a gift under an assumed name, regardless of the attached strings. If you felt the need to exercise your rights regarding your investment at some point in the future, there is a real possibility it will cause problems between you and your son.
Of course. In the example of 1/3 ownership of real estate, one way to do it, at least in France, is to create a company whose only activity is to own the house. Son, wife, and we would be equal 1/3 shareholders, and the only asset could only be sold if 2/3 of the shareholders agree. I'm guessing that if his wife walked out, we'd side with him.

But that's also why I wouldn't do this with money which was part of the income-generating retirement portfolio. It would have to be from money on top of that.
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Old 08-11-2010, 03:22 PM   #34
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Sometimes I wonder if the money to the kids isn't just a way to keep control. I have observed this dynamic.
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Old 08-11-2010, 03:29 PM   #35
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but for now the plan is to help her maximize her tax-deferred savings during the first few years out of college. (In the military that's the TSP as well as her Roth IRA.) Most college graduates don't aggressively fund their retirement accounts for the first few years, and a few dollars there will compound for at least 20-30 years to have the biggest impact.

This seems to be a fairly tax-efficient scheme (political risk notwithstanding) and a good way to put assets in her name at less risk of the typical personal legal catastrophes. We've also emphasized that we'd rather hand her an inheritance now to invest more tax-efficiently than we can, and that this is all there is.
This is what we did with the kids college funds when they weren't needed (do to our good fortune), and with similar reasoning. I figure we've now given them about as much as they need to get on with life - and if they can't get on, more money isn't what they need.

If we choose to help them in the future it is more likely to be grandchild related.
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Old 08-11-2010, 03:35 PM   #36
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Interesting timing on this since DW and I are dealing with different issues with DD and DS. We have always taken the often espoused "try to cover their undergrad costs but let them go after that" approach. By and large it worked pretty well. DS went through initial "failure to launch" and we responded with tough love - no bailouts. He turned things around and has been doing great for many years and married a wonderful woman who is doing even better (runs in the family) They bought a very small house nearby and have been looking for a bigger one since the grand kid arrived. They explored moving to the burbs (much less expensive) but ended up buying a nice place around the corner from where they live. Unfortunately they were a little short on the 20% down payment needed to keep the mortgage at a workable level. So DW and I loaned them the difference. We can afford it without jeopardizing ER and DS is good for it. It will be nice having them and my grandson stay within walking distance. Meanwhile DD graduated from her ivy league art school and, having ignored our suggestions to get a teaching certificate "just in case," has discovered that she loves teaching art to children. So, she is living in the basement and teaching part time at a private school. She's happy and it is fun to have her around (most of the time).

I think the bottom line is you do what you can to help while trying to avoid undermining them by making things too easy.
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Old 08-11-2010, 03:46 PM   #37
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My parents didn't help with college, car, apartment, or house expenses. They did let me move back home for a couple months a couple times when I was looking for new housing. They didn't charge me but they would've if it exceeded 6 months. I don't know anyone who had their parents fully pay for their college tuition. Only a couple had cars paid for for them. That's for parents with 6-figure incomes. That's maybe 1% of the households around here. It's just unheard of.
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Old 08-11-2010, 04:11 PM   #38
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I am not a parent, and do not generally consider it my business to offer parenting advice. However, since you’ve requested input, here are my two cents, which you can consider for whatever they may be worth:

(1) it is natural and desirable that you want to protect and assist your children. However, part of parenting involves cultivating their independence, so that they may develop into full human beings who are capable of looking after themselves when you are no longer around.

As Kleim and MuirWannabe have noted, the dangers of co-dependency are spelled out in The Millionaire Next Door. It would be worth reading that before you decided to set either child up in business or life;

(2) I am unsure exactly what you mean when you say that you would “feel uneasy about being nicely off if our kids were having to struggle”.

If by "struggle" you mean coping with events entirely beyond their control (e.g., a serious illness), that is one thing.

If you mean that they may have less disposable income than they might wish because they will be in entry-level jobs, I respectfully suggest that the latter is a normal phase of life and does not warrant your unsolicited assistance;

(3) your money might be better spent on sending both children to Outward Bound, the National Outdoor Leadership School, or a similar 'experiential education' programme. Their self-confidence will be increased and they will learn lifelong lessons in teamwork, resilience and self-motivation. They will also be more attractive to potential employers.

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I didn't specify this in the OP - I hadn't thought too hard about it - but if we put 100K into a home down payment or a business startup, it wouldn't be a gift. We would keep the equity.
You are setting yourself up for conflict and resentment. Loaning money to friends or family is invariably a bad idea. Either keep your money, or give it with no strings attached.
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Old 08-11-2010, 04:36 PM   #39
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TP, you are a riot!

Thanks... I get vetoed on things all the time... thats what I get for marrying a strong willed woman...
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Old 08-11-2010, 05:23 PM   #40
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We don't want to end up in the position of expanding the lifestyle and expenses of our kids such that they rely on us to fund their spending.
Great point! Setting your kids up in a house beyond their means, paying for a wedding they could never afford, taking them on lavish trips, etc. kind of sets them up for a let down. You can't do that forever and expect to retire. What about when they have kids? Kind of tough to take trips to match the ones you took them on. Kind of tough to move into a bigger house when you really couldn't afford the one you were living in.

Maybe you have the dough to continue to lavish your kids with expensive homes, vacations, cars, etc. in retirement, but I doubt it. Some day it is likely you will not want or even be able to work. Will you be willing to tell the kids to go cold turkey then or will you slowly throw your life saving at them so they can continue the artificial lifestyle you set up for them and hope you die at 75 so your money doesn't run out?

I also agree that a lot of parents give their kids money to maintain control. Weddings are the classic example. My DW used to do wedding planning. She saw so many unhappy brides because mom and dad were paying and they were in control. They picked the place, the food, the music, the church and invited all their friends to show off to. It wasn't pretty.
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