Most of the bloggers in the personal finance space are younger than me and either have no children or have kids that are still at home. For them the question of whether they should share their financial wealth with their kids once they are grown is purely hypothetical. For me and my wife it isn’t, because our three grown children are in their thirties.
That’s the time people are getting married, paying off school loans, buying houses, having babies (or at least pets) and those things tend to all be somewhat costly. I’ve seen many young bloggers write about how they plan to help their kids some day make a down payment or even to pay for their future grandkids’ college.
Personally, the plans my wife and I made together regarding our kids, years ago, were to pay for their four year degrees. After that other than normal birthday and Christmas gifts we did not plan to give our adult children any money until both of us died, hopefully at the age of 120, or older. And that is what we’ve done. Except for the college part, that ended up being free. Each of our kids managed to get merit based free four year degrees with everything, books, tuition, fees and room and board provided. So we gave them a few thousand bucks when they graduated but nothing like paying for their college would have cost.
Two of them have gotten married and we again gave them a few thousand dollars because they basically both eloped and there were no wedding costs to foot. And the only other time we gave them significant financial gifts was once, when we gave them each $10,000 as a surprise gift with no strings attached. We have no idea how they spent that or if they invested it.
But as time has gone on our assets have started to pile up. We’ve got about three times as much in stocks, bonds and cash as we need to provide us our lifestyle of choice. So practically, we could give half of what we have to them now and still have a 100% safety margin of extra money. All that is to say it isn’t a hypothetical question when it comes to what kind of financial gifting is appropriate for grown children, at our stage of life.
I hear the arguments all the time, why make your kids millionaires when they turn 60? They could use the money much more now. And that does make sense, I mean I’ve lived this. My parents were the prototypical millionaires next door who amassed a million dollar inheritance for both me and my brother. I was 58 and he was 60 when we received the inheritance. We both retired two years later. In my case the extra money was only a minor factor. The fact is, I was already a multimillionaire, and adding another digit in the seventh column didn’t really move the needle that much. It was a little more of a factor for him but he’s in great financial shape too.
I never expected to get money from my parents before they died, and I can’t imagine it would have made a positive difference in our lives if we had. I do think it might have changed the relationship if a significant part of our net worth was flowing in from them, at their discretion. Also I think we were good with money, and never felt a need for more than we had in our early married years. I was kind of proud of us for being frugal, having great kids and my having a stellar career. We felt the camaraderie of a winning sports team. We were all in on building a great life together, on our own. We got along great with our parents and had no expectations of either them or us ever needing any monetary assistance.
If they had given us a down payment for a bigger house then we would have never paid off this one and only house we’ve ever owned, so early. We likely might have bought nicer, more expensive cars and maybe taken more exotic vacations. But would any of those things made life better? I doubt it, life has been very good. I don’t regret not having a fancier house or fancier cars. I love what we have, and part of that is we earned it. And we didn’t need the Bank of Mom and Dad chipping in.
There are a lot of what if’s when it comes to a topic like this. What if one of your children just can’t support themselves due to an illness or disability? Then I’d say you have to step in and support their needs. But often life isn’t so clear. What if they just are not very successful and can’t seem to get past minimum wage jobs, does that change your responsibility as a parent? And if it does how do you know if they are simply lazy or really trying at life and have had a lot of bad luck? When is stepping in with money helping and when is it enabling grown kids to stay on the couch all day playing video games? Or maybe worse what if substance abuse is involved, then it is really hard to know where that line is between helping and throwing gasoline on the fire.
That’s hypothetical for me so far, my kids are doctors, engineers and college educators. They are all solvent and are middle to upper class earners. While none of them has our kind of wealth yet, none of them have trouble making ends meet. And the doctor married to another doctor will likely blow past my net worth in the future. Because there is no serious need for money I’m not inclined to hand it out to my kids. We might do another surprise gift at some point but not in any kind of repeated pattern that would create an expectation of a future income stream.
There is also the whole matter of how different cultures view the obligation of parents and grown kids. In much of the world a parent’s retirement plan is their kids. They raised them and there is a return obligation to provide for your parents in their old age. Also in many cultures there is an expectation that any family members with excess money have an obligation to all other family members who have financial short falls. One of my running partners is from the Philippines. She complains frequently how many of her relatives ask her to send money to them because they can’t find work. The United States is kind of unusual in terms of the degree of self reliance that is built into our culture. It is almost considered shameful to request help from parents or from your kids or to take financial assistance from the government. That’s also very different from other cultures. Yet this is my culture and it leads me to feel that providing monetary assistance to my kids when they are doing OK financially is simply the wrong thing to do. Being the safety net of last resort is one thing, helping them buy an 80 inch 4K television is something else.
While we have our plan and have stuck to it I am not 100% sure that it is the optimum way to handle the transfer of wealth to our kids that will inevitably happen someday. I lean on the fact that I never felt like my parents cheated us by hoarding money until they died. I feel like our kids feel the same way, but that still doesn’t mean we are doing things right.
I am curious, some of you are on the adult child end of this issue and some of you may be facing this from the parent’s perspective. What do you think is the right way to handle passing money down to grown kids?
Have any of you gotten a significant piece of your future inheritance while your parents were still living?
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i got my only inheritance early. my dad had passed and my mom gave my sister and me each 15k around 2006. that 30k was the whole enchilada and likely came from a life insurance policy. here’s the rub: i never spent a dime of that money. i was newly married only a couple of years and opened 2 roth ira’s and a taxable brokerage account. it felt like a real responsibility to do something constructive with that opportunity. i had to teach myself to invest and kept at it until i got good at it. the whole thing served me well.
we are kid-free so i don’t know what i would do in your shoes. you are in no danger of hitting the $23M combined lifetime gift exemption but those exemptions are up for discussion in congress. you could always gift up to 15k right now to each kid each year without triggering the need to fill out any tax forms. you never know when big brother will change the tax rules in a grand scheme to redistribute wealth. here’s an article as food for thought or further discussion: https://www.wsj.com/articles/estate-and-gift-taxes-2020-2021-heres-what-you-need-to-know-11617908256
Thanks Freddy, that was a good article you referenced. Figuring out what to have happen to your estate would be very much different without kids in the picture.
My parents helped my wife and I buy the current house we live in. We were already millionaires from our own savings, but the lump sum helped with the down payment and we are grateful.
I think it makes sense to help adult children financially if they appreciate the gesture. People who are close don’t transact using money. The currency they use with each other is appreciation.
If parents run into financial trouble can they expect their adult children to help them? If so then maybe there isn’t a defined line between parent’s money and children’s money. Maybe it’s all just family money. 🙂
Looks like it worked well in your family, and I certainly don’t see anything wrong with what your folks did. I’m just not sure about what we should do. Particularly with one couple that are huge earners and the others who are more middle class income earners. We have always treated all three equally even if there are different levels of income.
Wow, one of my two kids had a full ride too. It was great. I’ll make our last tuition payment this August for kid two. It’s like a huge pay raise to be done😂
I’ve been thinking about giving to the kids recently.
My husband received an inheritance and a gift from his parents, shortly before we married, to buy his first house which was great but his parents felt like it was their house to some degree so was a motivator to move a decade later. I can only take being told how easy it is to pick weeds so many times. But that one gift gave us so much flexibility and allowed us to start investing early. It wasn’t enough to live in a nicer area though so I feel like that aspect kept us from too much lifestyle creep. The gift was also made after he picked the house. If I remember correctly there was an amount he was told he’d be given then they gave him more than agreed.
I’d like to help with a home purchase for similar reasons.
After reading I’m secretly hoping my kids elope with their fiancées!
Stephanie, those invisible strings concern me, too. There is something about money changing hands that so often has implied leverage with it. Sounds like you negotiated that tricky part very well. Congrats on a free degree for one of your kids. The opportunity cost of not having to spend that money and investing it instead is pretty huge.
We have 3 adult children and have paid for all of their education- including medical school for one. Another attended private school for middle and high school. All in, the total spent was a tad over 1 million. Ouch- but they are great kids and the oldest has more than us at this point. All of them have or are enroute to great and successful careers. They all appreciated not having loans and we were able to pay without it affecting our future.
I think you learn by example and if you come from a family that was able to pay for tuition, or a wedding or a down payment on a home, you tend to have those values instilled. My in- laws paid for my husband’s education including medical school. My parents paid for my education as well. Since we were able to we did the same. We did get an inheritance from my husband’s parents and our children will get what’s left when we pass. At this point, the bank of mom and dad is now closed- they have gotten a lot from us and we don’t plan on making anymore random gifts. We need what’s left for whatever life throws at us.
Sounds like a solid plan, Ellie. I guess we didn’t pay for grad school/medical school was because our parents didn’t either. It is kind of an inherited tradition. In our son’s case he worked as an engineer for seven years before he decided to go to medical school but the girls both got masters degrees right after their bachelors degrees. Of course we also knew they could work for the college and get the advanced degrees basically for free, which they both did. My son had to take out loans for medical school but he should have no trouble paying them off.
We’re still in the kids-at-home phase, but are trying to raise the kids so that they don’t expect anything beyond what it sounds like you promised your kids. In part because we want to make sure they know they’ll generally have to make it on their own and for them to know to be fiscally prudent. Also, as you touch on, because—although they’re too young to appreciate this—once you introduce money into the picture, you introduce potentialy relationship-killing obligations and expectations. That’d make the giving-the-money exercise counter-productive.
Fifo, That does sound like us, it is strange there is no “right” way to handle this situation. Just from the commenters it is obvious there is a wide range of choices families have made. I do think you are smart to shape your kids’ expectations well in advance like it sounds you are doing.
My siblings and I will likely each inherit 7 figures in our 60s (hopefully 70s). My mon (dad passed away) has been very transparent on what she owns and how she wants to distribute her estate when the time comes. We’re in our 50s now and it reads like we’re in similar situations to where your kids will be when they are our age (e.g. NW in multiple millions). We got our undergraduate education paid for by our parents but after that, we were on our own. Our expensive private university graduate school degrees (MD in one case who did get some extra help from mom and dad) were funded by ourselves. There is something good to be said about building your wealth on your own. We were luckly enough to have a stable, secure home when we grew up that allowed us to attain a BS degree debt free and that is more than anyone should be asking for from their parents. Giving more when the adult child should be self-sufficient may foster enablement that strips a person of pride in building their own financial success. With our parents, this has even extended to grandkids whereas grandma and grandad didn’t contribute any money towards their schooling (siblings kids have graduated college or in college now). Our parents helped us but it’s our job to help our kids with their college education, not theirs. In our eyes, this is part of being a good parent. To have kids but not plan for their success, including helping with their undergraduate education, can be seen as “bad” parenting.
Every family, personality and situation is different so what our parents did and how we kids are reacting to what they are doing may not work for other families but it seems to be working for us.
Phillip, you do sound like you are living a very similar life, just younger in the journey than we are. I feel like what you are planning has worked for us, so far at least. And maybe there is no right or wrong way, as you say it may depend on the family. I do think in your case, and ours, one thing that was important was transparency. My mom predeceased my dad by a couple of years and he was very clear about how much and where he had his investments and savings. Settling his estate was not difficult. I want to pass that gift on to our kids of having a written estate plan and all accounts payable on death to our kids. Great comment!
It’s great to hear the perspective of someone who is actually living this; I hope to follow the same path to a T. It sounds like the perfect arrangement — kids who work hard, are self-sufficient, and expect nothing — and the freedom on your part to be generous with them without any burdensome feelings of obligation, duty, guilt, etc. Question for you: how much did you mention this expectation to your kids when they were growing up? Or was it implied by how you did or didn’t spend money on them as kids? My folks never really talked about it and seemed to get really stingy when we grew up, and I still resent them for not managing our expectations better. And we tell our kids until we’re blue in the face, usually in a half-teasing tone, that we’re not giving them squat when they’re grown. It does seem to be working, at least with the one we have in college. But I’m curious if that kind of expectation management was important in your case. Because society tells our kids that their parents are supposed to pay for college, wedding, help out with a house, and maybe pay for private school for the grandkids!
Mrs. FCB I think we were pretty transparent. They knew we’d pay for a four year degree but that grad school was on them. They knew we were not a source of money, they all worked for spending money as teenagers. They knew we expected them to get summer jobs to earn spending money in college. Once they were college age we opened the books to show them how many millions we had, they were kind of stunned because we lived frugally. I suppose they thought we maybe had a few hundred thousand invested instead of a few million. One daughter told me she was raised “poorer” than any of her friends even though we had more money, after we showed her the portfolio. I took that as a compliment and actually she meant it that was as well. They are all frugal now. My MD son in residency drives a 2004 Toyota and the girls are consignment store expert shoppers. My dad showed my brother and me his spreadsheet of investments when we were in college, we were surprised at the amount of investments because he sold insurance out of our house and my mom was a public school teacher. He updated us at least annually after that. We knew well in advance we’d each get a million dollars someday, which we did. I think you said it best, our kids expect nothing from us but love. Because of that I’m tending to think every once in awhile we might make a surprise gift, just not often enough to build an expectation.
I recently read a book called “Die With Zero” and this was the exact premise: spend your money while you’re alive, and give your kids their inheritance when they need it. I kind of agree that adult children may need the assistance more in their 30s than in their 60s. But I also get the point that self-sufficient kids might not need or want the ‘hand-out’. I stand to inherit a fair amount of money, probably 7 figures, at some point in the future. I will almost certainly be retired already at that point. Could it help more to get that money now? I suppose, but we don’t really need it. Like you, we will plan to get our kids through college debt-free, but beyond that I’m not sure yet. It might be nice to help them with down payments on a first house, or similar expenses. This is a good, thought-provoking question, and I can definitely see both sides.
Adam, I wish I could have offered answers instead of questions but I don’t think there really are any firm answers. Part of it may be because the US is such a young country and it is such a melting pot that there is no real American cultural standard for passing down wealth from one generation to another. I think our kids would prefer us to spend the money but that’s not going to happen. The whole idea of FI is that you live off of the growth and even people withdrawing a maximum safe withdrawal rate usually will double their net worth across their retirement because of the incredible power of compounding investments. I certainly don’t see anything wrong with helping on a down payment or other things like that. In fact when my grandmother died my wife and I were on the verge of buying our first house. My parents passed $3,000 of the small inheritance she left to me and my brother. That covered the down payment on the house we still live in 42 years later. Houses were a teensy bit less expensive back then!
Whatever you do, don’t LOAN your kids money. My parents loaned me $60K towards the purchase of a new house. I wish I’d never taken their loan and instead used a mortgage (which I’m well-qualified for). They offered me the loan out of the blue (I did not ask) and I accepted because I had to move very quickly. Even though I paid them back within our agreed timeframe, they changed the terms of the loan (I won’t get into specifics here) and even brought my brother into it. Shakespeare is right – “neither a borrower nor a lender be, for loan oft loses both itself and friend” (and family!)
That sounds like hard earned advice, wallies! I agree that lending is much more problematic than gifting money. Loans always have strings attached, gifts only sometimes do.
Timely thought provoking post for me.
We will be in the fortunate situation where we can choose to help our adults kids with a warm hand rather than a cold hand when they are ready.
My mantra: Save some, spend some and invest some has provided helpful guidance during holiday time.
When it’s time for a home purchases, bank of Dad will most likely assist, provided they have “skin in the game”. They’re responsible adults going through the accumulation stage as they watch us go through the process in reverse.
A little momentum will help at the right time and we get to enjoy and revisit the growth phase that we experienced 30 years ago from a different perspective.
Francis, makes perfect sense to me. I can see several sides to this issue and I think it depends a lot on what feels right to the parents. With multiple kids I also worry about the appearance of fairness. My doctor son and his wife may be netting close to a million a year when they are in their peak earning years. At that point it would be ludicrous to think they’d need help on a down payment. But our other kids will probably never approach that kind of income. Our family practice has always to make gifts equal regardless of need or the wealth of the recipient.
Hi Steve, I saw your note on Sam’s blog where you expressed “Earning more money has zero appeal to me now that I’ve internalized the concept that I already have more than I need.” Would you mind sharing more detail as to how you internalized that concept / reached that mindset?
Sure Long-time. I’m not exactly positive but I think it was by absorbing some wisdom from so many wise bloggers. Plus I’m an engineer and the math is pretty compelling that with what we spend we just don’t have enough years left to run out of money. It helps that I contributed the max to Social Security so in my case it will pay most of my expenses.
My parents never had much money, but they did give me a small amount of cash (which would have been a large amount of money for them) to buy an airfare when I needed to fly overseas for a business opportunity. I didn’t have any money at that time either. That gift actually changed my life and something I’m so grateful for.
That’s a great example Ant. To me that is like an investment they made in you. That’s a lot different than funding kids’ day to day expenses. I’d definitely consider doing that. I bet they are awfully proud of how that paid off for you. Nothing feels better than seeing your kids win at life, just simply to be happy.
Like you, I have Filipino colleagues who complain about how much they’re tapped, even taken advantage of, from family back homes constantly asking for money. Some of the abuse is unbelievable — and some of it qualifies as abuse, not help.
Anyway, I don’t have kids, but I’ll likely inherit some money and will have some money to give upon my own death. That said, I dole out cash now to my niece and nephew for them to enjoy, but I don’t go wild with my generosity. My parents do the same with us. They like to give us things here and there, but nothing large. As far as I’m concerned, their money is their money because they earned it. Yes, they inherited some money, but mostly they worked hard and were frugal. It’s their money to spend now.
As for my own money, I plan to leave it to my niece and nephew provided they’re responsible adults. I’d also leave a chunk to charities I’ve long supported, but those charities will see more if my niece and nephew act irresponsibly.
You are always so wise Katie. I always forget that Filipino and Philippines are spelled different, typical dumb Arkie. I agree you should not fund out of control heirs, I would not either. Fortunately my kids are doing OK so that shouldn’t be an issue. I’m not surprised you’ve thought things out, you are such a together person.
Oh, I almost forgot to add this. When we went to the casino with my college buddy and his wife, she’s also Filipino. But she is from a wealthy connected Filipino family unlike my running buddy who was from a poor subsistence family. While my running buddy is besieged with requests for money the wealthy wife of my buddy was shocked when I told her, she has never been approached by relatives. Apparently the upper class over there is as disconnected from the poorer people as we are over here. Somehow that makes me feel I need to do more to help people less fortunate than me.
There’s absolutely something to earning the money on your own throughout your life. You have to go through a little bit of the struggle to appreciate it. I think the inheritance model is the way to go–by the time you received a million dollars, it didn’t change your relationship with money. To me, that’s important.
Thanks IF, appreciate the comment and the perspective.
For me personally? I wish my parents would give me money. To be honest, I probably gave my parents close to $60k already and oh my god, are they just downright awful with money.
I wish I kept that $60k for myself and watch it grow to closer like $100k already so that our entire family could benefit, not just my parents. I also wish my parents gave me more money to invest so that our entire family would be better off because I know how to invest it, they don’t.
I’m all for the “give cash when they’re younger” camp. I can’t stand the “but you have to earn your own money!” BS. I know how to earn my own money, just making me go through the motions for “pride” I personally think is ludicrous.
Thanks David, its good to hear from someone who sees it differently. I have always thought that by not being a burden, not ever needing a penny of my kids’ money I’m doing enough. But its clear that’s not how you see it and I can’t say you are wrong. My kids tell me they want us to spend the money, they don’t want it. But would they really tell me if they felt differently? I don’t know, you sound like you have zero problem saying exactly what you mean. I’m not sure my kids are like that. I hate your parents sucked with money but it is very common. At least you don’t.
Well, to be honest, I had a problem saying it to my parents. My parents told me “I think you would be better off keeping the money for yourself, I wouldn’t like it if I was in your shoes doing the same thing for my parents”.
I let my pride and the “I have to earn my own money” thing get in the way and I didn’t say anything. I wish I hadn’t listened to others telling me that “don’t take the easy way out”, haha. I wasn’t as straightforward back then as I am now.
Great content! Keep up the good work!
Thanks!