Young Adult Children & Money

[pj.mask]

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]

Quote:

Originally Posted by 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.

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]

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]

Quote:

Originally Posted by dirtbiker 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]

Quote:

Originally Posted by ncbill 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.

[HI Bill]

I'd see how the $40K plays out. I had a college dorm mate that won $25K in a lawsuit. Six months later, he had a six-month old Camaro, and $0 left.

I would not give either daughter additional funds, regardless of the outcome of the use of the $40K. Let them build a life, work ethic, and a career. Then, when they've landed on their own two feet, help them out with the down payment on a place, or wedding.

Don't gift them $ at this point, IMHO, they will either lose motivation, or the $, or both.

[pj.mask]

Here is a thought... when your older daughter gets her $40k, use that as an opportunity for her to move out and get her life started. You can try giving her lump sum or setting up some budget ($40k/24mo = $1,666/mo, 18mo = $2,222) with an account transfer or something. I fully expect the money will be spent but because this is not an irreplaceable amount of money for you, I think it is worth the life lesson cost.

How can you use this money to push your daughter to be independent (while not pushing her away from you emotionally) and hopefully get her to realize her responsibilities in life and do something about it.

A meeting with a psychiatrist might be helpful on advice for how to proceed/discuss in a delicate way. It is oftentimes hard to see things from another’s perspective - especially family (people we have known forever but who have grown and changed significantly over that time)


(I’m not a fan of pushing people to risk their lives for a job in military)

[The Cosmic Avenger]

Quote:

Originally Posted by pj.mask Here is a thought... when your older daughter gets her $40k, use that as an opportunity for her to move out and get her life started. You can try giving her lump sum or setting up some budget ($40k/24mo = $1,666/mo, 18mo = $2,222) with an account transfer or something. I fully expect the money will be spent but because this is not an irreplaceable amount of money for you, I think it is worth the life lesson cost.

The $40K is an inheritance from the daughter's grandfather, so Aus_E_Expat may not have any control over the distribution, but if this is a case of the grandfather giving money to his adult children with an understanding that it's to be distributed to the grandkids, then I like the idea of making it conditional. Personally, if I controlled it I would offer to release it for needs like rent or tuition, with little to no discretionary allowance, which I'm imagining similarly to the usual limitations of a special needs trust.

[pj.mask]

I was thinking more like ‘your grandpa left you $40k and this money should enable you to start living on your own. The money should arrive in month N, we expect you to be out on month N+1.’ Followed by a discussion on how they plan to budged this money to bridge the gap between now an when they finish school with earned job income.

I heard in the break room some older person talking about how their adult kids don’t talk to them unless it’s asking for money. Blew my mind, never felt entitled to money from my parents (beyond small change but that’s give and take, ‘do you have $20 cash’ vs ‘can you order this item online for me’).

My planned budget allows about $1k/mo per kid as a gift and I don’t have any issue gifting that to add to their retirement savings so they can reach FI sooner. If they don’t live a sustainable lifestyle with goals, I’d rather enjoy that money myself.

[wolf]

In similar situation. Anyone out there figure out a simple plan. Assume, 2 daughters,
will not be able to handle large inheritance. ie. IRA, rental real estate, CD's.

Goal. Be sure what they do not become homeless. Due to divorce, bad business decisions, not being able to budget, etc.

Thanks.

[Cayman]

Quote:

Originally Posted by brewer12345 Your kids are not mature enough to deal with significant sums. Reconsider in 5 or more years.

Agreed. Give them at least 5 more years.
I'll add that treating them equally would be a priority for me. When it comes to loved ones, it's too easy to play games and favorites with money.

[Retch The Grate]

I feel like how my parents have handled things worked fine, but I'm Gen X. When we graduated from college it was expected we were moving to wherever we had a job. While our rooms and support were available if we needed them, we were planning on not living at home and had no thought of asking for support. When my parents started gift transferring money so they could feel they were making an impact on our lives while they were still around to enjoy it we were already well established adults with careers, and money of our own. At this point, I totally appreciate the money transfer, but it didn't de-rail me growing into a responsible adult on my own. I had always gone with the assumption of no inheritance, still do for my retirement modeling. I think it is really important to be responsible for your own existence if you want to grow up. Living at home and being provided for by parents stunts gaining the necessary life experience to actually live independently.

[jasg]

I don't know what sorts of investment accounts are available in Aus, but in the US, I would open a Roth IRA for each of them and encourage them to contribute by matching their contributions. Start at a high match, say 10:1 the first year and step it down to 1:1 over som appropriate period.

- teaches them to save, without being too hard at the beginning
- teaches the value of employer matching in 401k's
- do something similar to encourage 401k is they have them. Do something like a match to double the employer match
- stress the importance of compounding - e.g. investing 10 years from 25-35 beats 30 years from 35-65
- start in a simple VG target fund
- get them used to maxing out the retirement accounts
- if you still have funds to give them, help them establish an emergency fund

Finally, after all of that give them outright gifts to spend - if they have taken advantage of the rest.

[DougJohnson]

Quote:

Originally Posted by pj.mask I was thinking more like ‘your grandpa left you $40k and this money should enable you to start living on your own. The money should arrive in month N, we expect you to be out on month N+1.’ Followed by a discussion on how they plan to budged this money to bridge the gap between now an when they finish school with earned job income.

This.

To be rude: you are enabling DD1. All three of my daughters got a talk to the effect of "Congratulations on your pending graduation. The gravy train is coming to a screeching halt." All three became fully self supporting. -- Doug

[steveark]

Needs to be equal barring a life or death situation, but limit it to 10k, or 20k at most with the conditions you get to see where it goes. If they are responsible for a couple of years then maybe give then some more. My kid will all get 7 figure amounts, but only after we have passed. We'r have then 10k each once, might do that again a time or two. They are pretty responsible engineers, professor and a medical doctor.

[morriss003]

Rather than giving them money to invest, consider sending them overseas to experience other cultures, perhaps living in another country for a month. Neither sounds like they are ready to have control of significant amounts of money. This time of their lives could be spent in exploration. There is plenty of time later.

[jjuneau]

I would challenge daughter 25 to show how responsible she can be with the inheritance she is about to receive. If she spends a modest amount on herself, puts a good chunk in a retirement account, and either completes her education or gets a good job, then in a year or two gift her a portion (maybe $50,000). Follow up with future amounts if and when it feels right. For daughter 19, let her know that when she completes her education, you will be gifting some to her also.

[Carple Tunnal]

What is the best way to divide to avoid resentment? If equal amounts to each daughter, the elder may consider it unfair since she had to wait 6 more years than her sister.

[VFK57]

Quote:

Originally Posted by brewer12345 Your kids are not mature enough to deal with significant sums. Reconsider in 5 or more years.

Agree. Also from my experience, watching many relatives and friends kids as well as our only son growing, I came to conclusion: spoiled kids are very seldom able to earn their living and support a family. On the other hand when parents do not give their kids anything they want, kids try to earn it themselves as early as age 15 - 16. When our son wanted a car or a new, fancy video game, we offered him 1/2 price of it while encouraging to earn the rest (from age 16). He is now married with 2 kids and own their house.

[Time2]

We have fully funded our kids Roth anytime they are eligible. They are both still in school so sometimes work and sometimes don't.
I also expect that neither will spend any of that money.