Monday, July 23, 2007

Helping children out?

How much help should you give your children? Where do you draw the line?

With DH's best friend living with us, he's going through the debate over whether to buy or rent. Usually it's a pretty simple answer. Buy if you plan on staying put but rent if not. But the unknown factor in the equation is what if your parents were to "gift" you with the cash for a DP? Would that affect one's decision to buy?

I think it would. After all you are mitigating risk by not having to supply the cash. You are reaping potentially reward with minimal loss. And you have an opporunity to get started with life faster. But the truth is it a good idea for a parent to give such a gift?

I know this guy and his parents can afford it easily. But I don't think they should give him the gift because honestly I don't feel he's a very responsible guy. He's a nice guy, but he's 30 and hasn't saved at all for retirement. Instead he travels and spends all his money. He doesn't have any debts, but he also has no assets. Part of it is the expectation of having an inheritence, which is not a bad thing.

But I wonder if this is the right way to "gift" your children with money? Should you help them out? What would be a better solution? I'm interested because I wonder if DH and I will be in that position one day?


Fabulously Broke in the City said...

Ooo .. I really suggest you read: The Millionaire Next Door by Stanley & Danko..One of my favourite PF books, ever.

It talks about the EOC (Economic Outpatient Care) that parents give to their grown children, and how it doesn't seem to ever teach them how to manage their money as they get older. In fact, the children come to DEPEND on this extra gift per year as a source of income, rather than as a gift.

The only truly successful/wealthy millionaires who manage to pass on their frugal values to their kids, are the ones who basically live a very simple, middle-to-low class life, and create a false sense of scarcity. By doing this, kids learn that money matters, and they tend to grow up and become frugal, budget, etc as all part of their nature, vs. the ones that had parents who gave them everything their hearts desired, AND gifts every year/subsidization of their living, etc.

jo-less said...

My SO and I are at opposite ends of the scale on this one :-) My parents have helped me a little - rent through university, small loans (<1k) when I needed it etc but not on an ongoing basis, and I was always very grateful when it happened and knew I could count on help if something happened, but I am also proud to be self-sufficient.

My SO, on the other hand has a LOT of private income from her parents - her 'pocket money' is more than my salary :-) The house we live in was paid for in full out of savings etc. It's mainly due to share income and trust funds set up a long time ago. However, she works hard, earns well and takes care of her money. We don't live an extravagent life (we have fun though!) and we make the most of the opportunities that money brings. Her parents always make sure that the family money is spent on sensible things by her and her two brothers. So, I think it can be done with common sense, and good teaching from the parents.

Living Almost Large said...

I actually have a couple of friends who are like that with trusts as well. And they are not bad people nor are the spendthrifts. I think it depends on the family and individual.

So it may not be a bad thing. I readthe Millionaire Next Door, very nice. But there was a very rich doctor in the book who drove a mercedes for 20 years. That I'd like to emulate.

I do not want to have money and not spend it.