Spending a Windfall

[jj]

The thread on leaving a legacy put me in mind of our giving my brother and his wife some money about 10 years ago.  All the kids were very young - they have 2, we have 3; and we were doing well - they not so well.  To assuage our consciences we decided we would give them about $40,000, no strings, to help get them on their feet.  They were both working full time to afford their house which was small but big enough for them.  We thought they would pay down their mortgage so that they had fewer outgoings, pay off their debts, etc.  In fact, they took the money as a licence to spend even more (vacations, toys, etc.) and take on more debt!  They bought a much bigger house, found they couldn't afford it, had to work even longer hours and ended up divorcing.  In many ways the extra money helped them to divorce as they could both get a small place as a result of having the larger house to sell. 

For me this throws out so many issues:

- guilt on my part that our actions played into the scenario where they divorced leaving two children with a broken home

- even when you know the family members well they will never spend the money the way you think they might/should

- most people (this board's posters excepted) can't handle money and have a spend, spend, spend attitude when they get any kind of windfall

- but for the most part, be glad that you won't be there to see it when you're dead and you leave your money to family.... 

jj (for the record, F M All's DW!)

 

[MooreBonds]

The thread on leaving a legacy put me in mind of our giving my brother and his wife some money about 10 years ago. All the kids were very young - they have 2, we have 3; and we were doing well - they not so well. To assuage our consciences we decided we would give them about $40,000, no strings, to help get them on their feet.

Wow! Very generous of you jj....

From watching a sibling sister go through her gross spendthriftiness of an inheiritance, I know what you mean.

Perhaps if you didn't have a 100% sure feeling that they were responsible enough to use the money wisely, it would have been better to purchase savings bonds in both their name and your name? That way, you could hold onto them, they'd never have to know about it, and if you included your name as a co-owner, you could always just cash them in if they never cleaned up their fiscal act. Perhaps tell them that you have $40k you'd like to give them to help them out, but they'd have to get out of all of their consumer debt, and save up a total of $x, part of it in a IRA. Make it like a matching-funds program?

 

[tryan]

what that's a tough lesson .... maybe anonomously paying down the mortgage would have been "better".  But they probably would have tapped it via a home equity loan ...

Most people are where they are for a reason.

 

[dex]

JJ, RE: guilt - you may have delayed the divorce but it looks as if it was bound to happen.

 

[jj]

JJ, RE: guilt - you may have delayed the divorce but it looks as if it was bound to happen.

  Although I beat myself up thinking that our actions may have precipitated a divorce I know that it probably had little effect.

what that's a tough lesson .... maybe anonomously paying down the mortgage would have been "better". But they probably would have tapped it via a home equity loan ...

Most people are were they are for a reason.

how true that is....

From watching a sibling sister go through her gross spendthriftiness of an inheiritance, I know what you mean.

I shall never get over how siblings brought up in the same household can have a completely different attitude to money.

My SIL is to this day constantly refinancing to take as much equity out of her house as she can. 

jj

 

[MooreBonds]

I shall never get over how siblings brought up in the same household can have a completely different attitude to money.

My SIL is to this day constantly refinancing to take as much equity out of her house as she can.

jj...while it can be perplexing, don't forget that one's attitude towards money is simply a manifestation of their basic, core personality. So just because one or both parents were a certain way means that it doesn't automatically transfer from osmosis into the other sibling. The same can be said with parents who were always caring and considerate, while their child became an obnoxious, self-centered SOB.

However....if the parents sat down the child(ren) and taught them good basics of personal finance, showed them the reason for delaying some purchases to save up money so you're not paying interest on credit card balances, etc., then it might do wonders to steer them in the right direction. When you leave it up to learning by simply watching, you have no choice...but when you actually sit them down and teach them, you will probably get through (to some degree).

I think the big problem is that not only do parents not do that, but they don't know the basics themselves. The boomers' parents may not have ever sat them down to teach them the basics - they simply saved their money in private and lived a simple life. So, when the boomers got their jobs and started earning income, they saw how much money was coming in and didn't know a good reason for not spending it all and living it up.

 

[Theo]

The one thing I will say about this is you should never give someone money with no strings attached if your going to get upset with how they choose to spend the money.  It's not fair to them or yourself.