Advice Please Regarding Young Adult Childen Finances

[45th Birthday]

I'm always amazed at the variety of different views, and the fresh ideas, I read on here regarding just about everything. So, I'm asking for thoughts on a situation that has been bothering me.

We have two mid-20's children, boy and girl. Both are working in good jobs, and could easily live on what they make and indeed save a little. Both, however, are living beyond their means, and consistently spending more than they make. Neither has student loan debt, we paid for college. Both had small jobs during college and full time work during the summers.

Daughter who was a business major lives in a HCOL place (with a salary to match). While she certainly has better financial skills, she has actually drained her savings quicker than her brother, who was a liberal arts major and lives in a LCOL place (also with a salary to match). They both contribute to retirement plans through work, but at modest levels.

I know many details of their financial lives because I have joint accounts with both of them (established when they were in college to allow for transfer of spending money) and can see their pay being deposited and their credit card payments (and other expenses) going out. Luckily, I have drilled it into them that they have to pay their credit card balances off every month and they have done that. However, they both are charging more on their credit cards than they should, causing their savings to decline consistently over time.

I have had at least two conversations with both of them, and even compiled spreadsheets showing them how they are spending more than they make. I have gone over budgets with them, and know that they both created budgets. They say they periodically monitor their spending and budgets, but I have no way of knowing whether this is true.

Their most recent credit card payments hit their accounts, and their overspending continues unabated. What should I do? Speak with them again? Send them an email discussing the issue? Ignore the problem and let them learn for themselves? They have been defensive in the past when this issue was raised.

This is getting long, but there is a bit of a compounding issue. Last year, we gave them both a meaningful amount of money with the understanding that they would save it. The purpose of the gift was to start reducing the size of our estate without setting up more trusts. Instead of saving the money, they are on track to spend it. I have dropped hints that I will not continue gifting money unless they can turn their spending around, but I'm wondering if I should explicitly tell them that future gifts are dependent on that.

 

[pacergal]

Take your name off their accounts!
They are adults now and need to learn.make mistakes on their own. You can be there to help as requested.
You have done your part as far as teaching them and can continue if they ask.
It is hard as parents to watch our children make mistakes or do things we wish they wouldn't. But that is how they learn.
Be there to lend a hand or help them if they fall--but at their request.

 

[Midpack]

IMO it’s going to be difficult at their age - saving and spending habits are largely formed when they’re younger, and by the examples they see first hand. The example you shared where you gave them money to save and they’re going to spend it is conspicuous. Hopefully you won’t give them another dime, you gave them a chance and they blew it, no more chances unless maybe they prove their on the right financial track for a few years. Fool me once shame on you, fool me twice shame on me...

Twenty-something’s that get help from family are at a disadvantage WRT financial independence. They won't learn if they know you'll back them up financially - we have friends with adult sons (one is 32 now) that still ask for and get significant money from Dad, it'll never end until Dad ends it. Odds are the sooner they’re forced to face the music without help, the sooner they’ll catch on. The best you can do maybe is to confront them while their debt is low, some folks get way over their heads before they catch on, and it can take painful years to recover then.

But the bigger problem for you is their saving and spending will depend more on the perceived financial habits of friends and peers than anything you can say. The greater the means of their friends, the less you’ll be able to influence them - “the richer your friends, the more it’ll cost you.” And they’re only guessing about their friends actual financial habits, they don’t know - that might be worth pointing out to them. [-]Unless you can choose their friends and peers...of course you can’t.[/-]

Sorry, I’m sure it’s not what you’re hoping to hear. Odds are you can only limit the damage, but that’s worthwhile, good luck.

 

[Sunset]

My thought is they both feel entitled.
After all, you have been generous in the past, and even recently. When you die, they will be rich....

Why save when you can inherit

 

[REWahoo]

Last year, we gave them both a meaningful amount of money with the understanding that they would save it.

Sounds like it may have been your understanding, not theirs.

I have dropped hints that I will not continue gifting money unless they can turn their spending around, but I'm wondering if I should explicitly tell them that future gifts are dependent on that.

Even though you may not think they behave like it financially, your children are adults. If I were in their shoes I would resent having strings attached to any gifts my parents gave me.

Allow your adult children to live their financial lives without your interference. Either continue to gift them money, with no strings attached, or stop/delay giving them money until some point in the future when you can do so without "the carrot or the stick" stipulation.

Both sound like they are well on their way to becoming independent adults. Don't deny them the opportunity to continue that journey, which almost always involves making mistakes along the way.

 

[braumeister]

Keep in mind the old saying:

"You can lead a horse to water, but you can't make him drink."

Best to give them some space to make their own mistakes. They're still young enough to learn from them.

 

[mystang52]

Maybe you can take some hope from this: Both of my married adult children are doing very well financially. I had a discussion with my son quite a while ago about saving for retirement, and he told me he has that taken care of. An old college friend is a Financial Adviser, and he is directing my son's funds.
Despite my voiced concerns my son stated he was content with this so I let it drop. Recently, this friend left the company (yep, it was Edward Jones) to go to another FA firm. He told my son how bad Edward Jones is (!!) and that my son should, of course, move the money to his new firm. At least this time my son smelled a rat and called me for advice. After we spoke, he moved all of his money to Vanguard. He had to pay some exit fees to get out of E Jones.
It wasn't that expensive a lesson, but it still p***ed off my son. At least he ultimately learned the lesson.

 

[foxfirev5]

IMHO you're way too involved. They'll probably figure it out once they have make their own way. At least they don't have student loan debt. Could it be a control issue?

 

[CardsFan]

Take your name off their accounts!
They are adults now and need to learn.make mistakes on their own. You can be there to help as requested.
You have done your part as far as teaching them and can continue if they ask.
It is hard as parents to watch our children make mistakes or do things we wish they wouldn't. But that is how they learn.
Be there to lend a hand or help them if they fall--but at their request.

Actually, I'm surprised the kids did not just stop using those accounts, and open new ones. There is no way you should have, or want, access to their day to day money habits. As Pacergal says, they are adults. I doubt there are many on this forum that did not mess up at that age, to some degree. The important thing is that they learn from it.

 

[pb4uski]

+1 You need to let go and let them find their own way... you can't push a rope... or adult children.

When I was their age, I found it most useful to "pay myself first".. I decided on a certain level of savings and that came out of my paycheck... any net pay that hit my checking account was spent. You might be best to encourage them to set savings targets, set up their paychecks to have that amount deducted from their pay and then spend the rest... and check in with them every 6 months or so to see if they are still on track and make any adjustments that are prudent to make.

 

[ivinsfan]

Quit stalking your children and how they spend their own paychecks. You made spreadsheets for them? You are pushing way too hard. They are single, working and with no college debt. They are newbies when to comes to money.

You have made your point several times, step away from looking at their bank accounts. In your shoes I wouldn't give them any more cash right now. In fact in giving them money you are making it easier for them to spend on fun stuff.

These are the prime learning years to strike a balance between spending on fun stuff and entertainment and start thinking about providing for a family and then retirement. Just let them be for awhile, they know where to come if they want money advice.

 

[travelover]

Not all of our education happens in a classroom. Your kids need to learn about spending and finances on their own. You've been caring to try to guide them, but sometimes they just need to figure it out by themselves.

 

[joeea]

We have two mid-20's children, boy and girl.

Their most recent credit card payments hit their accounts, and their overspending continues unabated. What should I do? Speak with them again? Send them an email discussing the issue? Ignore the problem and let them learn for themselves? They have been defensive in the past when this issue was raised.

Are you surprised they get defensive?

The words you use are interesting. "Young Adult Children".
In their mid-20s are they adults? Are you treating them like adults? At what point do you plan to stop trying to control their financial lives?

Do they realize that you are still on their accounts and are monitoring and criticizing their cashflow? That wouldn't be something I'd like - and it could certainly cause me to get defensive.

Last year, we gave them both a meaningful amount of money with the understanding that they would save it. The purpose of the gift was to start reducing the size of our estate without setting up more trusts. Instead of saving the money, they are on track to spend it. I have dropped hints that I will not continue gifting money unless they can turn their spending around, but I'm wondering if I should explicitly tell them that future gifts are dependent on that.

If you give away money, you have to be prepared that it will be used however the recipient chooses.

You can either stop giving money to reduce the size of your estate, or setup trusts with your rules embedded in them.

Or you could continue to give away money and stop worrying how it is used once it is out of your control.

 

[nwsteve]

If you want to "premove" funds for estate management, suggest you contribute to their ROTHS--they have one right? To keep "skin in the game", our approach was always on a matching basis once she had her own income. While in college, she would contribute her earned income and we would repay dollar for dollar. Perhaps, the lure of fee money might prove of interest and Roth withdrawals take a bit more effort to spend.

 

[Philliefan33]

Take your name off their account and let them manage their own day-to-day finances.

I have no idea how my mid-20’s DDs spend their money. I can guess, based on their habits when they were younger: The rule in our house was that for any money they earned or received as a gift, at least 10% had to go into the savings account. Oldest DD would save 50% and keep the other 50% to spend over a period of time. Younger DD would save the 10% and start looking for something to spend the rest on before it burned a hole in her pocket.

I imagine their spending habits still follow that pattern. But they are each paying their own way in life and AFAIK still following our “10% rule”.

 

[Silver]

They may be over spending because they know you're looking, as a kind of push back. They may be adults, but not very mature. Perhaps you believe this, and that's why you maintain the control you do?

I'm sure you know this, but it's not typical to maintain surveillance on a child's spending unless they are significantly dependent upon you for their income.
It's more intrusive than most people would tolerate, but they may feel they need to tolerate it in order to ensure their future funds. The overspending is a way to try and leverage some independence, would be my guess.

If I were you I would close all joint accounts, and stop all surveillance but also stop all gifts of money. Be honest with them that this is your plan. What do you think they would do?

 

[braumeister]

I know many details of their financial lives because I have joint accounts with both of them (established when they were in college to allow for transfer of spending money)

They're not in college any more. Seems really strange to me that they haven't closed the joint accounts and started using their own. I agree with others that since they haven't done so (maybe due to inertia), you should do it.

 

[exnavynuke]

Take your name off their accounts!
They are adults now and need to learn.make mistakes on their own. You can be there to help as requested.
You have done your part as far as teaching them and can continue if they ask.
It is hard as parents to watch our children make mistakes or do things we wish they wouldn't. But that is how they learn.
Be there to lend a hand or help them if they fall--but at their request.

Well put. "Meddling" is the term for this behavior and it's uncouth. If they don't invite you into that part of their lives, stay out of it.

 

[CardsFan]

Last year, we gave them both a meaningful amount of money with the understanding that they would save it. The purpose of the gift was to start reducing the size of our estate without setting up more trusts. Instead of saving the money, they are on track to spend it. I have dropped hints that I will not continue gifting money unless they can turn their spending around, but I'm wondering if I should explicitly tell them that future gifts are dependent on that.

I missed this the first time through. IMHO, gifting "meaningful amounts of money" to 20-somethings who are employed and able to pay their own way, without a very specific purpose (down payment, for example) is a train wreck waiting to happen, particularly if you are monitoring all of their spending activities.

Open separate accounts, with them as beneficiaries, if you want, and put the money there. I know this does not reduce the size of the estate, but frankly, if your estate is large enough to be worried about paying federal estate taxes, then they will still get plenty. Or maybe a trust IS the right answer.

 

[NYEXPAT]

Actually, I'm surprised the kids did not just stop using those accounts, and open new ones. There is no way you should have, or want, access to their day to day money habits. As Pacergal says, they are adults. I doubt there are many on this forum that did not mess up at that age, to some degree. The important thing is that they learn from it.

+2 I talk to my twelve year old about money all the time, but have no idea how much his Mother gives him or how much is in his wallet or wherever he keeps his money. I am led to believe he does not like to spend his own money. My three year old on the other hand takes the change out of my drawer and I suspect is blowing it all on his cute 20 year old nanny!

 

[45th Birthday]

So it seems I need to take myself off their accounts. This has been in the back of my mind, and I know it isn't typical to have access, and I also know they need to develop their own independence to a greater degree.

I don't think they feel entitled, they are very grateful for what we have given them. We are a close family, and they do rely on me for financial (and other) advice. I do not think they resent us knowing some of their financial details, and I don't think this makes them more likely to overspend. Just to be clear, we really don't know what they're spending money on because we don't see the credit card statements (and almost all their non-rent spending is on a credit card), just the amounts.

They were brought up in very comfortable circumstances. We have always been concerned that it would be difficult for them to adjust to a much more modest lifestyle, and also concerned that they might not be as motivated since they can probably deduce that they will inherit a large amount of money some day.

The suggestion from nwsteve about funding a Roth instead was brilliant. If we continue to gift them money, it will be in some form of retirement savings as long as we can avoid exceeding limits.

 

[REWahoo]

Just to be clear, we really don't know what they're spending money on because we don't see the credit card statements (and almost all their non-rent spending is on a credit card), just the amounts.

The fact that you point out "we don't see the credit card statements" implies you think maybe you should, which is an indication you don't view them as adults.

Yet you know that "almost all their non-rent spending is on a credit card" which is also telling - and intrusive. When my two children were first starting out I had no knowledge of how they spent because it was none of my business. I suggest that same approach would be beneficial to both you and your children.

Once again, give them room to grow and gain independence.

 

[Aerides]

Agree with everyone to leave them to their own devices here. I would perhaps let them know that you're off, and stepping back, and PS that gift was a one-time thing and won't be re-upped.

I don't think you should gift them any money again either. Perhaps things like a first house, or wedding, some concrete stuff, but even then, modestly.

This is coming from someone who wayyyyy overspent their income in my 20's, and had to figure out how to budget and deal with that myself. It wasn't pretty, but it would have been worse if my parents had bailed me out, or set me up with a lot of cash because it would have just been that much bigger a hole once I buried myself.

 

[mh]

+1 You need to let go and let them find their own way... you can't push a rope... or adult children.

When I was their age, I found it most useful to "pay myself first".. I decided on a certain level of savings and that came out of my paycheck... any net pay that hit my checking account was spent. You might be best to encourage them to set savings targets, set up their paychecks to have that amount deducted from their pay and then spend the rest... and check in with them every 6 months or so to see if they are still on track and make any adjustments that are prudent to make.

I’m with some of the other posters. It’s “weird” that you have access to their credit card account at this stage. If you have strings attached to “gifts” you give them , it might be best to just stop the gift thing and save/invest for them on your own if you have ways you’d like it to happen?

 

[Mdlerth]

If you love something, set it free...

But the bigger problem for you is their saving and spending will depend more on the perceived financial habits of friends and peers than anything you can say.

+10

It's jaw-dropping how powerful peer pressure is, and at every age. We can influence what our children do, but it's their peers who shape what they want. When we're not looking, they'll do what they want.

Ditto on the suggestions to remove yourself from the accounts and halt the gifting (or perhaps put gifts into irrevocable trusts they don't know about). The Prime Directive of parenting is to turn the nestlings into independent adults so they can carry on the species.