Helping Your Children to FIRE?

[Danny]

Besides teaching your children how to FIRE, are you going to help them achieve it?

When the both of us have passed there will hopefully be something to pass along - it could be enough to make them FI whether or not they want to ER. So that's one way to help out.

But since we're going to live a long healthy life, they might have to wait a long time.
So, I've been mulling over passing along some of the money before that time. Right now we are going to give each $40k in cash at 25 (split over 2 years to avoid gift tax). Later thinking of passing more - not sure how to go about doing it - outright or a tax-deferred acount or ?

Later on if there are grandkids putting some into 529 accounts or ?

What will you do? Any ideas on how to gift the money?

 

[Marshac]

Right now we are going to give each $40k in cash at 25 (split over 2 years to avoid gift tax).

Speaking as a 25 year-old, it's way too young to hand over that kind of cash to a typical person my age... can you say new car? plasma HDTV? If your intent is to help them become FI, feed them information and books for a few years- once they are properly informed and better educated about money/investing, then give them a test-run of $10k or so. See what they do with it. On the other-hand, if you simply want to help them artificially and temporarily increase their own consumption, then by all means- bring on the cash (EOC).

You're in a much better position to gauge the maturity level of your progeny than I, although I am in a better position to assess my contemporaries.... i'm only reporting what I see

 

[Danny]

Marshac - like you said it does depend on the maturity level of the person and what they've been taught.
As a 25 year old what would you do with the money?

 

[wabmester]

Where's the poll?

First, ask yourself what you would have wanted your parents to do in a similar situation. Personally, I would view the money as a windfall at any age. I'm not sure it would teach me anything.

However, if my parents were to use that money themselves, that could bring me both happiness and relief. Happiness if they're enjoying themselves. Relief if I know they've taken care of things that might have fallen as a burden on me (housing, LTC, funeral arrangements, etc).

Perhaps you could blow a wad each year for an exotic family get-together. I know the daughter of a rich guy who really appreciates those mini-adventures that she has with dad.

 

[Jarhead*]

That's a question that I have struggled with.

My wife and I both came from large families, and the only money that changed hands since we both left our parents homes were from us to them.

Looking back on my life, knowing that there was no "safety net", turned out to be the best gift that our parents ever gave us. (Does wonders for your "motivation".)

My own children, even though we never made a big deal out of it, I think understood this.

Reflecting on this, when my kids were out of household, and on their own, (with the mindset that a hand-up to my wife and I at their age then, would have been put to very good use, I gave them both $5000.00 apiece. They were age 27 and 22 then. (Too young, dispatched the "windfall" in a blink of an eye. )

To their credit, they have never asked me for financial help.

We did help both of them with the down payment when they bought houses. (They didn't ask, we volunteerd).

I think the answer to the question is, it depends
on the maturity level of your kids, and if they will put the "windfall" to good use or not.

 

[SteveR]

I am struggling with the gifting a bit too. I have provisions in my estate to pay out a nice stash when I die to give them something to work with until my DW passes on. Then the whole estate would be distributed to the whole family as defined in the trusts. I may gift some cash to them later but not until I feel they have the maturity to invest it and not piss it away.

My mother is in Assisted Living and her estate will pay for it for as long as she lives. If not, then I will pick up the bill on it. She spends very little so does not need anything from me except to manage her stuff.

I will just have to see what happens when they get out of school (if that ever happens :)

 

[grumpy]

Our plan is to fund 529 accounts for our grandchildren (when, and if, we have any). These accounts would be intended to cover the full costs of a college education for each grandchild. We will tell our children that they do not have to save for their kids' educations; they can start saving for retirement at an earlier age. This approach has the benefit of still requiring our kids to have the discipline to save and invest for retirement and avoids the worry that they would squander any gifts we might give them directly.

Grumpy

 

[Jay_Gatsby]

I'd consider helping my kids go FIRE, but only if they showed a willingness to exercise the degree of discipline required to do so.  They say that family fortunes are squandered within three generations -- 1st generation makes it, 2nd generation manages it, and the 3rd generation spends it.  It's possible to break this cycle, but only if the requisite knowledge and discipline are imposed early and repeated often.

Although I don't have any kids yet (not even married, but that's likely to change in the next year), I would be inclined to teach them the basics when they're old enough to understand the math.  In fact, I'd even be willing to act as the "National Bank of Dad", offering CDs, investments, etc...until my kids are old enough to have savings accounts, CDs and investments of their own.  As for giving them cash when they're in their 20s, I would make the money contingent on them taking finance and accounting classes in college (and receiving a minimum grade of "B"), as well as a few other adult-education classes on money management offered outside of the college environment.

Yes, I know, what 20-something would go through that kind of hassle for a few thousand bucks?  Well, I know that I would have in my 20s, especially if I knew that I'd be receiving more money as time went on, ultimately culiminating in an inheritance worth millions of dollars.

 

[retire@40]

Besides teaching your children how to FIRE, are you going to help them achieve it?...What will you do? Any ideas on how to gift the money?

Your kids have to want to FIRE just like all of us here want to FIRE. If they don't want it, you are not going to be able to force them to accept the philosophy.

One way to do it is to tell them you will match their savings dollar for dollar up to an agreed amount. That way, it gives them an incentive to save on their own with your encouragement. When they start working and have some earned income, you could set up a Roth IRA for them, have them contribute as much as they can (up to half of the maximum), and you can match the other half.

 

[gravesend]

Marshac - like you said it does depend on the maturity level of the person and what they've been taught. 
As a 25 year old what would you do with the money? 

DanTien,

When I was 25 years old, my parents gave me 20k to supplement my 20k for a 20% downpayment on my condo.  I did not need the money from them, but since it was my first big-time purchase, that 20k really eased my worries.  with some money left over, i bought and sold and bought and sold and bought and bought other properties.  it was addictive.  i now own 3 condos with about 350k in equity.  

I was never too financially dependent on my parents.  During college, I worked part time to pay off my private college tuition and living expenses.  I received about 2k a semester from them for the first 2 years and had been financially independent (from parents) since.   one other big item was a used nissan that they bought for me for 8k since i wasn't spending their money for school.  that was a nice gift.

the point is, i was always a responsible person money-wise but a bit risk adverse.  it wasn't until that extra assurance that my parents gave me that really took me to the next step financially.  

I am now 28 yrs old.  Although those 3 years were long and tough, i felt they were worth it.  At first, my parents would go to open houses with me, and help me decide on whether they were good investments.  Lately, I just invite them to see the apartments after their purchase and wow them by my good finds.  I've definitely surpassed them in terms of being RE-smart.  But only because they've showed me how.

 

[Patrick]

So, I've been mulling over passing along some of the money before that time.  Right now we are going to give each $40k in cash at 25 (split over 2 years to avoid gift tax). Later thinking of passing more - not sure how to go about doing it - outright or a tax-deferred acount of ?

No, don't do it!  NO!  NO!  NO!  Read "The Millionaire Next Door."

 

[kz]

One suggestion would be to fund a Roth IRA  for them with $4000 a yr for the next 10 yrs. (if they have earned income and don't already have IRAs) That is unless you want them to buy something they really want (car, house) with the money.

We helped oldest son (25) with the downpayment on his house and bought all new appliances.  I'm not sure what we'll do with youngest son since his education was 2-3x what his brother's education cost us. We do plan on starting funds for the granchildren's college educations once they arrive.

Our sons will be inheriting a lakefront condo from an aunt (which is to be passed down thru future generations) and substantial cash from two other aunts. (all unmarried/divorced with no children) Hubby and I will probably hire the financial planner to help them with these inheritences.

 

[Nords]

Besides teaching your children how to FIRE, are you going to help them achieve it?

When the both of us have passed there will hopefully be something to pass along - it could be enough to make them FI whether or not they want to ER. So that's one way to help out.  

But since we're going to live a long healthy life, they might have to wait a long time.  
So, I've been mulling over passing along some of the money before that time.  Right now we are going to give each $40k in cash at 25 (split over 2 years to avoid gift tax). Later thinking of passing more - not sure how to go about doing it - outright or a tax-deferred acount of ?

Later on if there are grandkids putting some into 529 accounts or ?

What will you do? Any ideas on how to gift the money?

Gotta know your own kids, but I'd think that giving them (or me) $20K at that age would have been quickly spent on home improvements or other entertainment.  Or on a really hot small-cap stock!  I think it's far better to give them the gift of benign neglect or occasional grandparent babysitting.  But we're decades away from that experience so we know nothing.

I've watched parents try to educate their adult children financially (copies of Bogle or Bernstein) but that seems to be either ignored or despised as controlling.  M*'s Vanguard Diehard board is full of those horror stories.  But when I was in college I appreciated gift subscriptions to Business Week & Scientific American and I've kept them up for over 25 years.

I've seen parents pay for the family fantasy vacation (e.g., a four-generation reunion on a cruise ship) but even that has made progency feel coerced into spending time with their parents.  A weekend backyard BBQ blowout is one thing, a week-long cruise is quite another.  But you gotta know your kids.

Our kid sees us living the FIRE example every day.  Usually she ignores us-- she thinks we go into suspended animation when she leaves for school and then we re-animate to bake cookies just before she gets home.  But occasionally we'll bitch share our stories of a really busy day or tell her how we spent all that time on the beach.  

We tell our kid that we hope she finds a career that she loves, and that if she LBYMs then she'll have more choices.  And every time she tells us that she really likes the hot [car, laptop, electronic media, MTV crib] we tell her to get a really high-paying job.  She saw a great sitcom episode once about adult kids whose parents refused to subsidize their kids' first apartment, allowing them to have their own thrilling experiences of independence & self-reliance.  I think our kid gets it.

I'm still wrestling with learning the Hawaii state tax laws, but this year we're going to put the kid to work (rental property & home improvement projects) and fund her Roth IRA.  I don't think she'll earn more than three figures for the first couple years but it's worth the compounding (or the house down payment).  By the time she gets a real job the IRA habit will be ingrained.

I'm ambivalent about funding grandkid's college accounts.  I think that kids do much better when they have a stake in their education.  But I may be biased-- I have a nephew at West Point and we're watching a lot of our shipmates send their kids to the Naval Academy this year.

The nicest financial things my father/parents-in-law ever did for us was to talk about how they invest and what references they read-- not about how we should do it.  We started out with their playbooks and then developed our own.  We also enjoyed being their guests at the occasional Schwab free dinner investor's conference.  Picking apart the speaker's ideas with them really taught us about the financial industry's business of fleecing attracting investors to the next hot idea.

Another really nice thing my father did for me was to disclaim my grandfather's inheritance.  It was a tiny five-figure windfall, completely unexpected, and a nice boost to our kid's college savings fund.  Of course I was 41 years old when that happened.  But disclaiming an inheritance in favor of your kids (assuming that fits your own financial planning) is a great way to say "I love you" with no strings attached.

I'd consider helping my kids go FIRE, but only if they showed a willingness to exercise the degree of discipline required to do so.  They say that family fortunes are squandered within three generations -- 1st generation makes it, 2nd generation manages it, and the 3rd generation spends it.  It's possible to break this cycle, but only if the requisite knowledge and discipline are imposed early and repeated often.

Although I don't have any kids yet (not even married, but that's likely to change in the next year), I would be inclined to teach them the basics when they're old enough to understand the math.  In fact, I'd even be willing to act as the "National Bank of Dad", offering CDs, investments, etc...until my kids are old enough to have savings accounts, CDs and investments of their own.  As for giving them cash when they're in their 20s, I would make the money contingent on them taking finance and accounting classes in college (and receiving a minimum grade of "B"), as well as a few other adult-education classes on money management offered outside of the college environment.

Yes, I know, what 20-something would go through that kind of hassle for a few thousand bucks?  Well, I know that I would have in my 20s, especially if I knew that I'd be receiving more money as time went on, ultimately culiminating in an inheritance worth millions of dollars.

I've read those statistics in Thayer Willis' "Navigating the Dark Side of Wealth.  One of the Johnson heirs has made a documentary on rich kids of legacy families... it's even worse than Paris Hilton.  Fiduciary education (by anyone other than the parents!) is the key, and family banks have taken on a huge offspring-tutoring business in fiscal responsibility & charity.

David Owen's "First National Bank of Dad" is a classic when they're young.  We're still using it.

As for offering money in exchange for self-improvement-- in my 20s I would have regarded that as a really crappy second job.  I was too busy screwing around leading my own life and I would have been perceived as coercive parental interference.  But you gotta know your own kids.

 

[REWahoo]

We gave both our children (daughters) a budget for their wedding (4 years apart, adjusted for inflation). Told them if they came in under budget we would give them the savings to help with a down payment on a house. One came in $3,000 under and took us up on the offer, the other spent every penny on her wedding day.

Beyond that, we have limited our transfer of wealth to funding 529 plans for the four grandchildren, targeting enough to pay for two years of college. Even if we could afford it, I don't think it is a good idea to pay for the full ride. Nothing creates a sense of appreciation for what you have like having to truly earn it.

Both kids know how tight their dad is with a dollar and are a little surprised we've gone as far as we have with the college plans.

 

[TargaDave]

Our plan is to fund 529 accounts for our grandchildren (when, and if, we have any). These accounts would be intended to cover the full costs of a college education for each grandchild. We will tell our children that they do not have to save for their kids' educations; they can start saving for retirement at an earlier age. This approach has the benefit of still requiring our kids to have the discipline to save and invest for retirement and avoids the worry that they would squander any gifts we might give them directly.

Grumpy

Agree with Grumpy and REW. My folks have 529 accounts for our two kids that will probably cover 2 yrs. We plan to do the same for our grandkids if and when. I think it is a wonderful "safe" thing to do regardless of the full/partial/make-em earn it debate. We don't need it but my folks get a lot of enjoyment out of doing it. For one of my brothers it might be the only family money his kids see for college. Of course this doesn't apply if your kids don't have kids.

 

[Marshac]

Marshac - like you said it does depend on the maturity level of the person and what they've been taught. 
As a 25 year old what would you do with the money? 

I don't think i'm a typical 25 year old when it comes to money. If $20k were dropped in my lap, I would probably invest in some individual stocks, as well as have the ability to buy options....my current cash-flow only really allows for investing in mutual funds. I know about DRIPs, but don't want to deal with figuring out costs when it comes time to pay the tax man.... I have read that if you have several DRIPs, it can be an absolute accounting nightmare.

As for my friends.... their current object of desire is the Toyota MR-2 Spyder.

 

[wabmester]

As for my friends.... their current object of desire is the Toyota MR-2 Spyder.

Excellent choice. I'm sad to report that I sold mine a few weeks ago. It had mostly been sitting in the garage since our now-preschooler came into the world. But, I miss it. It's a very fun car, and I'm without a 2-seater convertible for the first time in over 20 years.

Sniff.

So, I blew a couple hundred bucks on a new RC helicopter last week! Woohoo! Sometimes, money can buy happiness.

 

[Martha]

I've read those statistics in Thayer Willis' "Navigating the Dark Side of Wealth. One of the Johnson heirs has made a documentary on rich kids of legacy families... it's even worse than Paris Hilton.

One of the reasons to support an estate tax.

 

[HFWR]

Yes, give it to someone deserving, like the govt...

 

[brewer12345]

One of the reasons to support an estate tax.   

I've seen several people basically ruined by a large trust fund.  No motivation to do anything, life is a game and when one amusement (including people, careers, etc.) becomes tiresome, they move onto the next.  Since I will shortly be a CFA charterholder, I frequently get mailings for continuing ed seminars on wealth management.  Makes my skin crawl every time.

I don't know what we will do for our kids.  It will really depend on what their level of interest and maturity WRT financial stuff is.  I hope we will be successful in imparting an understanding of the value of money, etc., but I suspect it will be a real challenge.  Our daughter (and future progeny) will be growing up in a middle class suburban area where the Joneses are at it every day.  More than likely, the kids will be going to prvate (Catholic) schools.  They will be offered their pick of whatever they want to do sports/hobby wise.  I've no doubt there will be intense peer pressure to consume.  Should be interesting.

 

[Martha]

Yes, give it to someone deserving, like the govt...

Well, we are going to get taxed anyway. I'd rather be taxed after I am dead.

 

[HFWR]

Good point!!

 

[FlowGirl]

I think its a mistake to drop 40K on a 25 year old. If they are responsible enough to use the gift wisely then they are responsible enough to save for their own retirement.

The husband and I have a great sense of accomplishment from having done everything on our own. I wouldn't want to deprive my kids of that feeling. I also wouldn't want the burden of a gift that had obvious expectations attached to it. Maybe your kids don't care about ER, or won't in 10 years. If they dip into the money or slow down their personal savings rate because of the windfall will you be silently (or not so silently) watching and judging their spending habits?

 

[cute fuzzy bunny]

As a middle aged ER with a newborn, I can enable his FI easily. He gets our portfolio and the rest of our belongings on our passing, which statistically should be when he's in his forties and has a stable life and family.

In the meanwhile, he'll get school, a car, maybe help buying a house.

 

[Nords]

In the meanwhile, he'll get school, a car, maybe help buying a house.

Our daughter is executing the free agent clause in her contract to move in with your family.

I'd offer to trade but I don't think I can give you enough money to take her!