Should You Help Your Kids?
Do You Want to End Up Sleeping on Their Couches?
Sunday, March 28, 2010
When I was six years old, I was expendable. The lady in charge said so.
We were on United Airlines, flying from Los Angeles to Detroit to visit my grandparents, aunts, uncles, and the rest of the family clan. The flight seemed to take forever. We were sitting in the last row, near the lavatories, because my mom had read somewhere that this was the safest place to sit in the event of a crash. I just thought it smelled.
“In the event of an emergency, oxygen masks will drop from the ceiling above your head.” As she said it, the flight attendant – known as a “stewardess” in those days – held a sample oxygen mask in her hands and placed it over her head. “First, place the mask over your own face, like so,” she said. On went the mask. “Then grasp the white cord, pulling firmly until you feel the rush of oxygen through the mask.
“Next, after your mask is safely and securely in place, help your children with their masks, repeating the process for them.”
Let me get this straight, the plane is plummeting to earth at four hundred miles per hour and my mom is going to be able to find her mask, put it on, pull the white cord and then put my mask on? By the time she was able to do that, we’d all be dead!
Clearly, children were at the bottom of the pecking order.
But what made no sense then makes perfect sense now. As an adult, I now understand the logic behind the “place the oxygen mask on your face first, then help your children” concept. If the parents are unconscious, they are in no position to help anyone with anything. But when I was six, I just felt that kids like me were not that important.
How does this relate to money? We all want to help our children, no matter their age, and you may have noticed that as our children get older, the help they need comes in ever larger dollar figures. You first feel it when your offspring gets a driver’s license and wants a car. It only gets more expensive from there. When they’re adults, the next thing they need help with is the purchase of a home.
Recently a new client, Jane, was sitting in my office, telling me that she planned on helping her adult son and his family to purchase a house. While most adult children want only the best for their parents, my radar went up, because I’ve seen adult children take advantage of their parents many times over the years. The dollar amount Jane was considering was a sizable sum indeed, especially as a percentage of her net worth.
Seven Years Earlier: “Of course I’d love to meet your son, Ms. Jones, it’s usually a good idea to communicate with family about finances.” Later, I’d come to realize that young Mr. Jones was an exception to this rule.
We scheduled an appointment for the three of us to meet in my office.
My first insight into his character came when he walked straight into my office without knocking. My receptionist, Vicki, was right behind him, mouthing to me that he had just walked past her, she had tried to stop him, and she was sorry.
“No problem,” I told her. “We’ll be fine, thanks.” It bothered me when clients and prospects were rude to my staff, because I liked my staff and wanted them to be happy coming to work. The fact that Vicki, the receptionist, was also my mom didn’t make me feel any better about this guy.
“What’s your background?” were the first words out of his mouth. Clearly, this was going to be antagonistic. But what he asked next left me speechless.
“How much will my mom’s account be worth in 13 years?”
Had I heard him right? Had he actually just asked me how much his mom’s account would be worth when she died? He’d researched her life expectancy and wanted to know how much he was likely to inherit when she passed.
My stomach turned.
While this interview happened several years earlier, it was still fresh. So with that memory banging around in my head, I asked Jane what type of help she was thinking of giving her son, how much she planned on giving him, were there plans for repayment, and so forth.
As it turns out, her son and his wife wanted to purchase a home. They felt that the real estate market was depressed, and rates were low, and they wanted to take advantage of the opportunity. All of which made sense.
In this case, I had met the son, and knew for a fact that, like most children, he had his mom’s best interests at heart. He was clearly not calculating his inheritance and would rather his mom be comfortable than put his own needs first.
“What do you think,” Jane asked. “Can I afford to help my son buy this house?”
Rather than answer, I shared the analogy of the oxygen mask with Jane. Recently, she had flown to New York City to visit friends and take in a show. “What do they tell you to do when the oxygen masks fall from the ceiling?” I asked. Instantly she replied “You put them over your face.
“Do the parents put their own masks on first, or their childrens’?” I continued. There was a moment of silence, during which I knew the conversation could go either way. Either she would be willing to see the point and agree with me, or decide that she just didn’t want to hear any more from the crazy financial planner who just didn’t understand her situation. After careful contemplation, Jane said “I’m not sure I get what you’re saying.”
I let out a sigh of relief because I really liked Jane and didn’t want to see her poor. It sounded like she was open to suggestion regarding this large gift. “Here’s the challenge, Jane. Wanting to help your children is a normal, natural desire,” I said. “I’m willing to give up everything to help my daughters. But the problem, you see, is that we’ve discovered that you’re not in a position financially to help them to that degree.”
I continued, “What would likely happen is that you would be helping them now, but in a few short years, you would run out of money and be forced to make some hard decisions. You might even be forced to move in with them. My guess is that this is not where you want to end up, am I right?”
“So you don’t think I can afford to give them money?” she responded. One of the things I liked about Jane was her forthrightness and honesty.
“Jane, whether you give your children money is really not my business. I understand the impulse, and would support you whatever you do. We can do financial planning in a vacuum, where our emotions don’t come into play, but in real life, we need to consider more than just the hard facts.
“But to answer your question,” I continued, “I don’t believe you can give your children that much money based on what I know about your financial situation. Might it be possible to help them but to a lesser extent?” With that, we had a lengthy dialogue regarding the wisdom of helping her son in such a significant way financially, when she herself was on a fixed income and had a finite amount of assets to work with.
I often run into clients like Jane who are willing to listen and modify their plans based on a professional opinion. Unfortunately, not everyone is like her. Frequently I see parents helping their children purchase homes, cars, education, and so forth, sometimes to their own financial detriment. Can you afford to help your children financially?
Before doing anything, ask yourself, do they really need my help? Or do they want my help? Big difference. Then go through the financial planning process. If you help your children now, might that place you in the perhaps unwanted and awkward position of needing to move in with them later? There is nothing wrong with placing your own legitimate needs first. After all, the odds are that your children have time to make more money. Do you?
If, on the other hand, they need money because they handle money poorly, will giving them more really help?
When might you give your children money without a second thought? If you have such a large net worth that you could afford to give that money away and never see it again and it wouldn’t affect your lifestyle in the slightest, this might make sense. There are always special circumstances, of course.
Is there a simple formula that will guide you in making this decision? None that I know. As you’ve guessed, I’m an advocate of hiring professional help. A good planner can help you decide what financial help, if any, you can afford to give your grown children.
Kevin Bourke is a registered principal with and offers securities and financial planning through LPL Financial, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.