Helping Your Children Financially: How Much Is Too Much?
Q&A with Andy Fishman
We’ve all heard the old adage: charity begins at home. But is that always the best idea? Entertainment news has been rife with high-profile individuals, such as singer Sting and late actor Philip Seymour Hoffman, who have been opting not to leave their children large legacies in spite of their significant wealth. So we thought we’d put Affiance Financial’s own Andy Fishman, CFP®, on the spot regarding this issue.
Q: Just how much should you help your kids financially?
A: Helping your children financially is a very personal issue. There are no “right” or “wrong” answers—it’s really a question of family values and resources. So, caveat emptor: what you read here is just my personal opinion.
That said, in my 19 years as a financial planner I have talked to a lot of families, and witnessed the results of countless decisions, about leaving a legacy, paying for college, and helping young adult children in a variety of ways. I’m also in the process of helping my own kids go to college and start their adult lives.
Q: The college years are a difficult time for most families financially. Do you have any tips for parents?
A: Most parents want to help their children with college expenses to the best of their ability. Given that paying for college has become an “extreme sport” cost-wise, parents are usually willing to help with tuition and living expenses. You might ask your children to find a part-time job or to take on some amount of debt, depending on how important you think it is for your children to have some “skin in the game” or what their current and anticipated financial situation looks like.
Parents who use their own resources to help their children with college expenses are investing in them up front. There is an expectation that the child will become a productive worker, and that the college degree will allow him or her to become self-sufficient.
Q: What about after the college years?
A: After college, decisions become more individualized. As parents begin to think about leaving a legacy, it’s useful to think about not leaving an amount that will “dis-incentivize” your child. It’s difficult to name that dollar amount, but an appropriate limit might be between $500,000 and $1 million. Any more than that and your child may not feel the need to do any kind of productive work. On the other hand, your children may need to work because you might live a very long time.
If you currently have a significant amount of assets, you may want to create a trust that includes a timeline and rules for how and when to distribute the dollars. If you are concerned about your child’s ability to handle the money in a lump sum, you may want to set an initial age at which your child can start to receive the money, with a percentage becoming available at regular intervals. Like all investment decisions, no two situations are alike and these decisions are very personal.
There has been an economic sea change since many parents came of age. According to a June 22, 2014, NY Times Magazine article, “In 1968…a vast majority of 20-somethings were living independent lives; more than half were married. But over the past 30 years, the onset of sustainable economic independence has been steadily receding. By 2007…fewer than one in four young adults were married and 34 percent relied on their parents for rent.” And that was before the recession!
Enabling versus helping is a very fine line--and again, the definition is an individual one. Yet most parents probably don’t want their 30-year-old living in their basement, not taking steps to secure his or her own financial independence. In that situation, you might choose to focus your assistance on paying for specific items that will help get him or her out of the house and be productive, such as education, coaching, job skill training, or therapy.
Of course, it’s another thing to have your child living under your roof as a productive, bill-paying adult—or trying hard to become one in the reality of today’s job market.
Q: Should parents sacrifice to help their children financially?
A: I am a firm believer that parents should never NOT do something because of feeling obliged to leave a legacy to their offspring—be it travel, buying a car or the like. While I am personally more than happy to educate my kids, my sense of obligation ends there.
Moreover, some people feel that they don’t owe their children the bulk of their estate. They are comfortable leaving some amount to their children (again, depending on how much they have and their personal values) as well as giving generously back to the community in the form of charitable gifts.
Q: What about assisting “fully” adult kids financially?
A: Some people would prefer to give their children money earlier on, when it’s really needed, especially if their offspring don’t have high-paying jobs. If your son, for example, has a job, spouse, and children of his own, you might wonder if it’s a good idea to help with something like the down payment on a house (provided you have the means).
Again, I would say, don’t deprive yourself. If it is a question of now versus later, you may well decide they can really use the help now, especially if you expect to live a very long time! But every family situation is different, including such factors as whether the parents are still working and the child’s potential earning capacity.\
It won’t always be clear-cut. If, in your opinion, your kids are not spending wisely or saving adequately for their own retirements, then you may choose to hold back on your gifting. Or you may elect to put your money toward your grandchildren’s educations.
Helping your children financially is certainly a luxury that not everyone has. But if you are able to assist them, it can be rewarding for all concerned.
Registered Representatives offering securities and advisory services through Cetera Advisor Networks LLC, full-service Broker Dealer, member FINRA, SIPC. Cetera Advisor Networks LLC and Affiance Financial are not affiliated. Advisory services also offered through Affiance Financial.