Your Input on Teenager/Money Issue

[TromboneAl]

DD is a sophomore in college. Last March she took the opportunity to run a small company as part of an internship program (I'll tell more about that in another thread later). She needed money to buy a car, pay for apartment, etc. I made her a $7,000 loan, payable on Oct 15. Part of that was for the remainder of freshman year, since she had gone over her budget.

She worked very very hard, and made about $7,000 (she had expected to make more). She also learned a lot. However, her expenses were high, and she will only be able to pay back about $2,000 of the loan. Her spending was not extravagant.

Other factors: She ignored reminders that the loan would be due soon, and let the due date pass without paying anything. No "Sorry, Dad, I'm not going to be able to repay it." She didn't manage the money well, and had a few hundred dollars in overdraft fees.

So the question is: how do I handle this?

My plan: Explain that I don't fault her for not making money, and I understand how hard she worked. However, she needs to bear the responsibility for the risk she took, and suffer the consequences of not making enough money. Therefore, I'm putting her on a relatively austere month-by-month budget. I will forgive most of the loan. She has a job during the year, and makes about $288 per month, so I will require her to pay me $50 per month, and suggest that she save $50 month for next summer. Note that she has a generous prepaid meal plan.

It's so hard to find the balance between being helpful and giving her the proper understanding of spending. For example, she says "sometimes my roomates all go out to dinner, and how can she say no?" So this budget is meant to make her realize that if you don't have the money, you shouldn't spend it.

Any suggestions? Thanks!

 

[MooreBonds]

It's so hard to find the balance between being helpful and giving her the proper understanding of spending. For example, she says "sometimes my roomates all go out to dinner, and how can she say no?" So this budget is meant to make her realize that if you don't have the money, you shouldn't spend it.

Any suggestions? Thanks!

While it may be harsh and difficult to do to your daughter, the WORST thing (IMO) you could do is say nothing and forgive the loan. What will she do when she gets out in the working world and does the same thing? Think the banks/repo man will just say "Oh, don't worry about it....go ahead and go out w/ your friends for dinner while we ignore your debt".

You need to remind her that the $7,000 was a LOAN, not a GRANT/GIFT. Any bank or lending company would require certain payments every month. If a payment is missed for so many months, then she would go into default on her loan and the sh*t would start hitting the fan, and that daddy and mommy won't always be there to bail her out.

Use this experience to show her that sometimes, no matter how hard you work, things don't always work out - and an emergency money stash is required for things just like this. Also, send her monthly statements of her loan, so she can be visibly reminded how much she still has remaining. On her monthly statement, perhaps have a column showing how she would be treated (payment delays, add'l interest, etc.) if a bank had loaned her the money.

Also, show all of those stupid overdraft fees. Point out that she could go out to eat w/ her friends and order a steak dinner w/ a Margarita for 10/12/15 nights for the stupid overdraft fees she incurred!

Does she alread keep a budget of every expenditure? Tell her that it is a condition of her receiving parental assistance going forward, since the several hundred in overdraft fees is proof that she can't handle her money well, and that you're trying to teach her (just like she would have to do more work in a college course if she bombed an exam and had to do extra credit assignments...if they would even be available).

 

[Leonidas]

Other factors: She ignored reminders that the loan would be due soon, and let the due date pass without paying anything. No "Sorry, Dad, I'm not going to be able to repay it." She didn't manage the money well, and had a few hundred dollars in overdraft fees.

So the question is: how do I handle this?

It's so hard to find the balance between being helpful and giving her the proper understanding of spending.

I understand exactly how you feel – you have the money and want to help, but you don’t want to reward financial irresponsibility that will almost certainly lead to a future credit disaster.

If you don’t allow her the opportunity to learn about the risks of credit default, then you have to realize that someone else will. Someone who doesn’t love her and have her best interests at heart, who will teach her all about how much it sucks to be delinquent or in default. Someone like Citibank or those cute Visigoths and Vandals that work for Capital One’s competitors.

Oy! Pay up or we chop off yer ‘ead –or screw up yer credit!

Except it won’t be cute or fun and it will be a miserable experience that you hope she will be able to deal with and ultimately go on to fix her damaged FICO score.

If you want to forgive part of the debt because there is no way she can make enough to repay it while going to school – that’s probably not a bad idea. But I would insist that she pay up the amount you think she can swing. And I would not do her budgeting for her. She needs to do that on her own and putting yourself in the middle of that robs her of the learning experience. Just be like any other creditor – “I want the money you owe me” – and let her figure out that she can’t afford to go out with her friends as often as she would like. You want her to be able to tell her friends: “I can’t afford to go out tonight” rather than making you the bad guy: “My dad is being an ass and has me on this ridiculous budget”.

I would rather have my adult kids come to me some day and tell me what a jerk I had been but be grateful for the lesson learned rather than coming to me weeping while saying “I owe $30,000 and I don’t know how to pay!”

When he was 13, my oldest son (now a high school senior) got into the bad habit of misunderstanding the difference between when dad pays for something and when dad loans money that he expects to have paid back. I finally treated him the same way the CC companies treat us - with a $25 loan so he could go out with his friends. When he was a new customer I treated him like a king, but as soon as he missed the first payment I hit him with a late payment fee, a higher interest rate and a polite "Did you forget about us?" notice. He laughed and still "forgot" to pay me. The second notice was not so polite, I jacked his interest rate again but offered him a higher limit so he could "consolidate" his debts. Before it was over he owed me $40. All along I explained to him how it was exactly how he would be treated by a lender in "the real world".

Sounds like I'm weird I guess, but I knew that someday soon he would get the opportunity to screw it up for real and I wanted him to really understand what it would be like if it went bad for him. He started getting CC offers in the mail about the time he turned 16. He has shredded every one, and I asked him about that once: "I don't have a job - why do they want to give me a credit card? I know why, so they can screw me to the wall the first time I am late. They just want to make money off of me when I don't need credit and I don't have a way to pay it off. When I want a cc I'll get one, but it's going to be when I think I'm ready - not those guys."

 

[Caroline]

she needs to bear the responsibility for the risk she took

First, the disclaimer: I have no children and accordingly, no business WHATSOEVER in commenting on how other folks raise theirs.

That said, something that REALLY stands out for me is how little people seem to comprehend the risk/reward tradeoff. Whether its my sister hitting me up to cosign for a house (not in this lifetime!), or otherwise sophisticated people investing into every bubble that comes along, they don't seem to get that there is a COST, as well as a potential benefit that goes along with every risk they take. This seems so fundamental to any financial decision any of us make.

As to the overdrafts and the dinners with friends -- don't get me started. The former is just plain disrespectful of money and hard work, and as to the latter, one can go to a restaurant and have a salad, etc. without breaking the budget. I've been guilty of both of these things in my life, but toting up the costs and not being bailed out of them eventually cured me. Wish it had happened sooner.

My vote is for the hard line. (Again, this is easier for me to say than for you to do -- see disclaimer, above). In fact, I'd go further and say that you may have a duty to her to hold her accountable. Letting her off the hook is easier for her, but also for you, Daddy.

What would you recommend to another in your position?

 

[haha]

I recommend getting her off your books. Kids for teh most part do not like to be"helped" to understand things by their parents. Her friends will tell her what an ogre you are.

Make an amount you figure college is going to cost you- cost you, not cost her. Then give it to her quarterly or semi-annually. She may decide she would rather come back to Humboldt State and have more money left over for pizza and beer.

Of course if you need her to graduate from the more prestigious college, you have a different problem.

Ha

 

[azanon]

Sophomore in college; hmm, possibly not even 21.

>She needed money to buy a car? What, she tore up the first one you gave or you actually made her pay for her own first car?

>She going to college (full time?), trying to make good grades, AND has a job, presumeably to pay for something that you could have saved for ahead of time? Thanks dad!

A college education is the same thing as a high school education back when you went to school. Lets rephrase that. Without a college education (think high school education for you), she isn't ready for the world yet. Yes, you guessed it; that means you still should help her.

It sounds to me like she's trying to be her own parent now when she still isn't prepared educationwise to take care of herself yet. Sounds like you're in the process of abandoning her 4 years too early.

Forgive the loan, and have her focus on her grades so that she can get in a position of being able to take care of herself for real. If she can slap in your hand a "report card" of a's and b's every semester and doesnt waiver around in college changing majors or something like that, then she's making plenty of progress towards becoming an adult.

Azanon

 

[REWahoo]

...Sounds like you're in the process of abandoning her 4 years too early.

Azanon

Remind us once again of just how many children you have successfully (or unsuccessfully) launched into adulthood....

 

[azanon]

Remind us once again of just how many children you have successfully (or unsuccessfully) launched into adulthood....

I cant do that just yet, but i can tell you about a father-in-law that never gets to see his grandson unless he flies/drives here.

Good guess! Yes, my wife was another one of those 19-20 year olds that was financially abandoned by her father. My dad paid part of her tuition, and i'm paying the rest; including the bill incurred before i married her. She would have been forced to drop out had "we" not come to the rescue.

My dad paid for the majority of my private undergraduate education, and i'm plenty successful.

.............

Successful families are those that stick up for each other.

 

[azanon]

I'm just curious what some of you guys think these 529 plans and coverdells are for? Just for the spoiled brats?

 

[azanon]

Remind us once again of just how many children you have successfully (or unsuccessfully) launched into adulthood....

Also, remember too, i'm not so old as to have forgotten what it was like to be that young.

 

[Nords]

She worked very very hard, and made about $7,000 (she had expected to make more). She also learned a lot. However, her expenses were high, and she will only be able to pay back about $2,000 of the loan. Her spending was not extravagant.
Other factors: She ignored reminders that the loan would be due soon, and let the due date pass without paying anything. No "Sorry, Dad, I'm not going to be able to repay it." She didn't manage the money well, and had a few hundred dollars in overdraft fees.
So the question is: how do I handle this?

Well, Al, you sure signed yourself up for some abuse, and I see that others are stepping up to the plate.

I think the family relationship is probably more important than the money. Can you three have a "What did we learn from this?" conversation? She doesn't seem to appreciate how many longboards you've sacrificed for her personal convenience. Maybe during the discussion everyone can arrive at a concensus and a payment plan instead of negotiating surrender terms. It might even be worth the "cost" of forgiving most of the loan.

I think more important than the loan terms or the spending is the way that she didn't communicate about the upcoming trouble. It's an easy subject to shy away from and she probably felt pretty bad about bringing it up. It got put off a day at a time until suddenly it was too late to do anything about it. Yet learning how to address these uncomfortable subjects is one of the keys to succeeding in business-- or just about anything else.

Spouse & I bought a condo shortly after we married. Financing was tight and we decided to ask my folks for a loan to tide us over the closing. I forget the amount-- probably less than $5000-- and my Dad's response was "Gee, guys, I'm afraid we can't help-- all our money is tied up in our savings & investments and we don't have any spare cash to loan." So we had to find another way to settle the problem, and I think his tactful "No!" helped us far more than we appreciated at the time.

Our kid has had to learn several times that her bank does plenty of savings-- but no loans. When she runs out of money she either has to stop spending or start working!

 

[wabmester]

Al, you've already raised her. Time to see how she handles this on her own. I wouldn't mention the loan to her again, and don't explicitly forgive the loan (but mentally write it off). I doubt she has forgotten the loan. She's probably feeling guilty about it but is pragmatic enough to realize that she can place you low on her list of financial priorities.

Sure, it would be nice if she faced her delinquency directly and negotiated with you, but that may require more maturity than she has. Leave it alone. Maybe you'll be pleasantly surprised by a payoff with interest once she's graduated to wage slave status.

And don't loan her any more money!

 

[ladelfina]

I think I agree with azanon.. I don't have kids, but I remember college pretty well. It was very hard.. to get good grades took way more time and energy than a full-time job (guess who didn't get good grades)..

$288/month and that's it? Al, IF you can afford it, why not at least match her salary, or give her a fixed extra sum, or an amount linked to grades.? $288/month is what I see parents spend on supplies, clothes, books, school trips, allowance etc. for grade-schoolers. You don't get a lot of second chances in education, so I would argue that she should be spending her time studying and not working some minimum-wage job unless it is an internship or something related to her studies.

I agree she should have been more forthcoming about the state of your investment.. in the future, who knows, she might make CEO!

 

[azanon]

If some of you were my dad, you wouldn't be seeing much of me after this incident.

Abandonment is a two way street and let me tell you; there's a special kind of pleasure that comes along with eventually getting on your feet anyway, despite the abandonment, then having years of being able to make the abandoning parent pay for it. Even better, her father (my wife's father) doesn't exactly manage money well, and i might someday get the special privaledge of him asking me for help. I'll definitely pause and take some time to enjoy that he asked me before i coldy reject him.

Do i sound like this really ticked me off? Good, cause it did.

 

[brewer12345]

Al, I think that this is the time to make a point about credit and debt. She borrowed the money and agrees to the terms. She blew it on meeting the terms, but she needs to understand that this is not the way ot works in the real world. I would not forgive the debt right now (perhaps as a graduation gift). Instead, I would restructure the loan. Make it a loan (with interest) that she has to pay you $50 a month until a balloon payment of the rest a year after she graduates. That way she gets some experience with what it is like to have to come up with that cash every month. I would also show her what this would have been like if she had borrowed from a credit card, specifically the interest she would be paying, the monthly minimums, and how long (years and years) it would take to pay back at the monthly minimum.

IMO, this is an opportunity for an important life lesson without the ugly consequences of doing it in the real world: exactly what college is supposed to be bout.

Az, try to remember that every thread isn't about your sorry experiences in life.

 

[azanon]

Az, try to remember that every thread isn't about your sorry experiences in life.

Right. What this thread is about is a 20 year old kid being treated like an adult, and seeminly intelligent adults actually thinking there is anything ethical about sending a, probably, teenager into the world burdened by 10s of thousands of dollars in college debt. Hell, he didnt even buy her, her first car.

Just because the state says you can legally abandon a child at 18, doesnt make it ethical.

Its one thing to choose to live on a modest salary in the interest of wanting to ER, and quite another thing to make your own offspring, in effect, pay for it.

Do you guys seriously call that properly raising a child in the 21st century? Even with my masters degree (the masters i did get fully paid for myself), my first job only paid $23K. Does that sound like enough to not only pay all the bills, but to also pay off the entirity of a college degree?

 

[Mr._johngalt]

If some of you were my dad, you wouldn't be seeing much of me after this incident.

Abandonment is a two way street and let me tell you; there's a special kind of pleasure that comes along with eventually getting on your feet anyway, despite the abandonment, then having years of being able to make the abandoning parent pay for it. Even better, her father (my wife's father) doesn't exactly manage money well, and i might someday get the special privaledge of him asking me for help. I'll definitely pause and take some time to enjoy that he asked me before i coldy reject him.

Do i sound like this really ticked me off? Good, cause it did.

Ooh.....bitter and vindictive. Not good. Not good.

My take on this: Both my brother and I borrowed money from my folks
many years ago. I paid mine back. Brother did not (we were adults).
In my experience it's quite common for children to take advantage
of their parents by ignoring loan agreements/not repaying. My kids
never borrowed any $ directly from me, but I pampered them when I
was working and helped a lot with school money. I think my son may have
been working himself up to ask for a loan once (he was long since grown)
but I made it clear he should not look to me any further. He didn't and
everything turned out fine. IMHO, when it comes to your family
(parents, kids, etc.) you would be well served to go to great lengths
to preserve the relationships. We're not here that long. Being estranged
from family members is a terrible thing. I once explained it to my brother
in this way. "If I committed some horrible crime and was sent to prison,
I would expect you to stick with me and I would do the same for you."

JG

 

[Arif]

Al, I think that this is the time to make a point about credit and debt. She borrowed the money and agrees to the terms. She blew it on meeting the terms, but she needs to understand that this is not the way ot works in the real world. I would not forgive the debt right now (perhaps as a graduation gift). Instead, I would restructure the loan. Make it a loan (with interest) that she has to pay you $50 a month until a balloon payment of the rest a year after she graduates. That way she gets some experience with what it is like to have to come up with that cash every month. I would also show her what this would have been like if she had borrowed from a credit card, specifically the interest she would be paying, the monthly minimums, and how long (years and years) it would take to pay back at the monthly minimum.

IMO, this is an opportunity for an important life lesson without the ugly consequences of doing it in the real world: exactly what college is supposed to be bout.

I agree with brewer, without this life lesson she might just turn to credit cards that are advertised on campus. So refinance the loan for a longer period (couple of years) with a balloon pmt at the end. It is better she learn this lesson from her parents than from creditors who will have no problem affecting her credit score.

 

[Mr._johngalt]

Explain things to the kid and write off the loan. It's your child for God's sake.

JG

 

[spark0506]

Al,

My situation is very similar to yours and I know how frustrating it can be. On one hand you want to help and on the other you feel you have to teach and prepare them for the “real “world. Right now our oldest is a college Junior and we’ve been going round and round with him on money issues. To make a long story short I’ve decided I have to play hard ball with him and do all I can to teach him some financial responsibility. It’s hard for me to see him struggling but I strongly feel he has to learn now when the stakes are quite small as to later in life when the numbers can be quite large. I’m also keeping pretty close tabs on him and his grades to make sure that they don’t suffer. The last thing I want is for him not to be successful in his education but he has to learn how to live within his means. I had him set up at the start of college where he should have been able to get out with a 4 year degree, no debt, and maybe a few bucks in the bank. Now he’s got himself in a tough spot and I thought about doing some kind of loan thing but I know that if he owes money to “Dad” that he won’t follow thru, it won’t be like a real loan to him. He’s looking at a small school loan to get him out of his mess and while it really upsets me because I didn’t want him in debt I think long term he needs to do this. I think he needs to have a horse in the race so to speak and he has to take responsibility for his actions. I’ve stepped back and we’ll see what happens. I don’t think there is a right and wrong way, you have to do what YOU think is right. Good luck with whatever you do.

 

[Leonidas]

I don’t see where anyone, including Al, said, “to heck with Jenny – let her pay for her own education.”

Maybe Al can chime in and enlighten us as to the nature of the original expense and why he didn’t agree to just roll the costs associated with the internship into what he is already paying for his daughter’s education.

My sons have my commitment that I will pay for their education. I can afford to send them wherever they are accepted, and I can swing reasonable expenses for extras. But I intend to work out some agreement with them as to what is reasonable and anything over that will be out of their pockets. The costs associated with a summer internship would not be a financial burden for me, and provided it was a legitimate part of the education (and the costs were in line) I wouldn’t have a problem writing a $7,000 check.

But I’m not Al.

Without putting words in Al’s mouth, when I read his post I just assumed that this expense was over and above what he and his family had understood they would pay for as part of their daughter’s education.

The real issue is not the money she owes, but how she dealt with the situation of going into debt and handling her finances appropriately. She overestimated how much she would make, underestimated her expenses, neglected to balance her checkbook, and when she went into default she ignored her creditor. What do they call that in the real world? Default? Poor credit risk? Bankruptcy?

I remember Azanon’s post about his father in law who had the money to pay for his daughter’s education but refused to because he was cheap. But I also know my in-laws, who had the money and did just about everything for their kids. The result is that my brothers and sisters in law have all had horrible financial problems. Most of them make more than enough to live a nice lifestyle (two own their own businesses), but none of them know how to be responsible with what they have. Between them they have several bankruptcies, horrible credit and a few IRS liens for non-payment of taxes. The eldest sister in law (in her mid 50’s) can’t get a loan anywhere except the First Bank of Dad – and she’s defaulted there a few times (It has even extended into the second generation with her daughter who defaulted on nearly $100K to the First Bank of Grandad for a business loan). All of their problems stemmed from a complete ignorance of how to deal with credit and handle basic finances. None of it stemmed from divorce, in fact the ones who have finally straightened up their financial lives did so with the help of spouses who knew how to budget, pay bills and not borrow more than they could handle.

I’m not advocating that Al ruin his relationship with his daughter over a few dollars – but I don’t think he should just write the debt off if he can use the opportunity to help young Miss Trombone learn something important that they don’t teach in college. It’s better to be mad at the First Bank of Dad for a while rather than come back in a few years and be $30,000 in the hole to Capital One because she never learned how to handle debt responsibly.

 

[brewer12345]

I’m not advocating that Al ruin his relationship with his daughter over a few dollars – but I don’t think he should just write the debt off if he can use the opportunity to help young Miss Trombone learn something important that they don’t teach in college. It’s better to be mad at the First Bank of Dad for a while rather than come back in a few years and be $30,000 in the hole to Capital One because she never learned how to handle debt responsibly.

This is exactly what I was trying to say.

 

[maddythebeagle]

I don’t see where anyone, including Al, said, “to heck with Jenny – let her pay for her own education.”

T-Al didnt.... Al has explained in the past that he is sending his daughter to a private school out of state.....she bounces checks, and even didnt take responsibility for double ordering some airline tickets before (another post)....It seems like he is doing too much for her and she expects her parents to be a net to catch her on everything....I think it is a far cry from abandoning her vs. making her take on a little more responsibility....

 

[Mr._johngalt]

This topic has surely produced a plethora of well thought out advice/
positions. I still come down on writing it off after a good serious
discussion with the girl. I wouldn't want my daughter to be mad at
"The Bank of Dad" even for a little while. But, maybe I'm overly sensitive to this stuff having waded through so many marital/family troubles. As far as educating the girl in "the real world", the school of hard knocks has always
been a pretty good teacher. The learning may be painful, but the lessons
can last a lifetime.

JG

 

[spark0506]

Leonidas,

Very well put, I agree 100%.