Thursday, May 19, 2011

Your Money and Your Children: Setting Limits

While relaxing in the community pool the other day, I overheard a group of long-time residents talking about the growing number of foreclosures and short sales in their neighborhood.

"Well, Jim and Sally just went into foreclosure," said one.

"Kids drain them dry?" asked another.


Even with all the uncertainties of the housing market, foreclosures have been unusual here because most residents arrive with cash from the sale of a previous, more expensive home and buy their inexpensive retirement home outright. Mortgages are unusual in a community where most of us live on a fixed income.

I listened, horrified, as the group recited a sad litany of homes lost because retirees took out mortgages to help their kids.

In some cases, it seems, they stepped in to help when an adult child was out of work or in a health crisis.  In other cases, they seemed to have helped financially out of love and habit: to help their kids buy homes, to pay for grandkids' private schooling or college, to bail an adult child out of trouble with a mortgage or overwhelming credit card debt.

A couple on the edge of the group told me that they had paid cash for their house and had loved being mortgage-free. "But then our daughter went to college and didn't like the dorm and didn't want to share an apartment, so we took out a mortgage on our house here to buy her a condo and then our son wanted a house. He's kind of adrift and unmotivated and we thought it would be good for him to have roots in homeownership. So we took more money out of our house here and bought him a house. He's paying us back as he's able."

As they talked, I couldn't help but wonder: how much is too much? When do you help and when do you hinder an adult child's progress toward full independence with monetary gifts or generous loans? How much can you give your kids without jeopardizing your own independence?

While it can be a pleasure to help the kids and grandkids, either to get out of a crisis or to have something they could not otherwise afford, there is a limit. Each one of us has a very personal limit, to be sure. Some parents are willing to make major sacrifices in their own lifestyle to help their kids -- and this is a clear and firm decision -- and the right choice for them. Some parents, however, seem unable to say "No" to kids' requests for money. Continuing a pattern that started in their working years, they readily finance their adult children's wishes -- to their own detriment.

One widowed mother has never been able to say "No" to her only child, a son in his early forties.  When she decided to retire at 65, she took her pension in a lump sum. As soon as she had deposited it in the bank, her son begged her for a down payment for a house. His mother, who was living in a modest rented apartment, made a substantial down payment for his house, bought him new furniture and a new car.  After the giving frenzy was over, her nest egg was nearly gone.  As a result, she went back to work. Now, at 76,  struggling with health problems, she is still working, still living in her modest, rented apartment and hoping to make another attempt at a very frugal retirement sometime soon.

A relaxing, golf-playing retirement in a resort community isn't everyone's dream. Some people I know retire to help with the grandkids. Some prefer to live frugally so they can help -- or leave something for --their children and grandchildren. And some prefer to keep working indefinitely to help finance their children's dreams.

I have a dear friend with four adult children. Two of them are self-supporting. Two of them are professional actors, still struggling,  in their late twenties and early thirties,  for their big breaks and they need help from Dad.  He is happy to give it. Although he occasionally complains that "I have never made so much money, or had so little left over", he takes great pleasure in facilitating his children's dreams. He likes his job, didn't have his heart set on retirement anyway and can't imagine not helping his kids at this point. "I truly believe in both of them," he says. "They're so talented and they work very hard -- not just at acting but they also have part-time jobs.  They're not slackers. They just need a little help here and there. How could I not? It's a choice I make without question and without any regrets."

The limits of a parent's ability or willingness to help obviously are based on very personal and individual circumstances. But there may be some general guidelines to consider.

How much money can I afford to part with permanently?  Many parents lend money to their kids with the belief that the kids will pay them back in regular installments. Sometimes that happens. Some young adults are highly responsible and make paying parents back a major priority.
But in many cases, it doesn't get paid back -- especially if the money is bailing an adult child out of financial trouble.  Those who get in over their heads with credit card debt, for example, have an unfortunate tendency to repeat the financial crisis.  And if the financial problems have been a confluence of unfortunate events from too much mortgage or credit card debt coupled with unemployment or a major illness, it can be a very difficult process for the adult child to get back on his or her feet.  
Before lending money to an adult child, ask yourself if you can afford to part with this money permanently -- and then act accordingly.

Why is he/she asking? A major illness or loss of a job is one thing. Asking for money to fulfill a want rather than a need is quite another.

To mortgage one's retirement home to buy a house for an unmotivated drifter of a thirtysomething son or buy a college age daughter a condo because she doesn't like dorm life or to raid retirement savings to bail kids out of credit card debt once again sounds less like kindness and more like sheer lunacy.

Does a college student disliking dorm life or an adult son wanting a house constitute a real emergency?

Consider the fact that a college student can learn a great deal about sharing, about tolerance and about building relationships from living in a dorm.  Many kids today, used to having their own rooms, balk at sharing a dorm room with another. But, once the discomfort begins to wear off, there is much to be learned and enjoyed in living at close quarters with a non-relative.

An unmotivated drifter of a thirty-something son telling you that he wants a house does not constitute a financial emergency.  If an adult child really wants a house, he or she can work and plan to buy one on his or her own. By all projections, house prices will be depressed for some time to come.  It might give new motivation to the drifter.

Sometimes a request -- for college tuition money for a grandchild, for example -- can feel like an emergency, but may not be.  College is more expensive than ever, but some schools are excellent and affordable. Your child's or grandchild's future isn't jeopardized by passing on an expensive Ivy to attend a state school. One recent study, in fact, showed that major corporations preferred to recruit from state schools more often than private schools, with the rationale that students who could thrive at a large state school had the motivation and discipline that the companies were seeking.  Also, keep in mind that, while the kids can get grants and loans to finance college expenses, there are no loans for retirement. Although graduating from college without debt is optimal, in reality, most students these days do rely on student loans. And life goes on.

Keep this in mind, especially if you get money requests from adult children whose financial woes seem to be constant: If kids can't support themselves now, while working, will they be able to support you when you're out of money?

Some may need credit counseling from an accredited agency more than another loan from the Bank of Mom and Dad.

If I can't help with money, can I help my kids in other ways?  Look for alternative ways to help. Can you care for grandchildren while your son or daughter job hunts or works at a temporary part-time job that doesn't pay enough to cover child care? Can you help a child or grandchild research sources of college scholarships, grants or loans? Can you help an adult child to work out a plan or budget to get him or her out of a financial mess? Could you find a credit counseling agency, check it out and encourage him or her to sign up? Would you be willing to have an unemployed or financially strapped adult child move back home for a certain amount of time? There are so many ways you can help without breaking your own bank account in the process.
Give of your time. Give of your expertise. Give loving support.  But don't give away your own financial security. You're not doing anyone a favor.

Level with your kids and learn to say "No" with love. Sit down with your kids and explain what's possible and what isn't.  Your being financially independent is to their benefit as well as yours. Determine what you can afford to give them, if anything, and stick firmly to that.

It is one thing to sacrifice when you're working.  But sacrifice on a fixed income is a whole different matter. When you get under, it's very hard to get back.

One woman the group in the pool was discussing the other day retired to this community with enough cash to buy a beautiful home. She had a healthy savings account. Life was good for about two years. "And then," said a former neighbor. "Her kids started draining her dry. She mortgaged the house to get money to help the kids, after using up her savings. She lost the house about six months ago.  Now she's living in a single wide trailer in a wretched little park down by the railroad tracks. And she's down to living only on her Social Security. So things are pretty tight."

Sometimes saying "No" can be the most loving move you could make.  Throwing cash at an unmotivated or irresponsible adult child does no one any favors.  And using your irreplaceable money to finance whims and frills just doesn't make sense. So your granddaughter would like to go to an exotic destination for spring break or to Europe as a graduation present? Europe may have to wait -- until she is working and can afford to save and plan the trip herself. Maybe a more modest Spring Break destination could be ultimately more satisfying. I remember my college spring break trips well: I could only afford a train trip to visit my grandmother on her farm in Kansas.  It evoked some snickers from my dorm mates. But I remember those times of sitting and talking with my grandmother and the joy of those moments with much more warmth and clarity than some of my former classmates recall their exotic trips after all these years.

When you find your limit and need to say "No" to your adult children, remind them that your continuing financial independence is an advantage for all. Not having to support you financially in your old age is a major benefit for your children.  And let them know that, while you may not be able to offer support in cash, your love and your emotional support are forever.


  1. This is an important topic. It is so hard to define a true emergency at times. I know I have helped my own children considerably. I wish I could help more. On the other hand, one must be careful not to enable a child to pursue things that he or she should not be pursuing. Defining a true emergency is key.

  2. Good discussion of important topic. The only thing I'd add is that nobody should take out a loan (inclu. a mortgage) unless they can reasonably expect to have more money in the future than they do now. That's the only way to pay it back. Therefore, it makes perfect sense for a kid to take out a loan for college, or a 30-something to get a mortgage for a house, b/c they will likely be making more money as they progress in their career.

    But no senior on a fixed income should take out a loan to help out a younger person. If you have extra money you don't need, fine, help your grownup kids in whatever way you think is appropriate. But geez, don't take on the burden of debt that should rightfully be theirs!

  3. Very wise advice~though too late for us! Helping our children through school and purchasing their first house helped them on a solid financial future. The two of us had student loans for years, complicating our lives and holding us back. We worked hard and did what we could.

    At this point in our lives we are a bit more selfish in protecting our independence.

    Now, with the

  4. Thanks so much for your comments! Rosaria and Sally, it's great that you were able to help your children build a solid financial future. I remember so well how very hard it was to pay back student loans myself. Sightings, you're so right that no senior on a fixed income should take on debt to helo a younger person as much as one might want to.

  5. Interesting post
    A pleasure to read you pass.
    you have a happy weekend.
    a hug.

  6. A really important topic, Kathy and very well discussed. We were willing to pay our children's living expenses through college (tuition fees were still paid here in the UK 20+ yeas ago) on the strict understanding that they managed on what we gave them and didn't get into debt. They didn't, even though it meant doing without things and we were very proud of them. We then lent them each the deposit for their first home and both were scrupulous about paying it back as soon as they could.

    We might have seemed harsh in our requirements by some people's standards, but better that than what is happening with one of my close relatives who is constantly having to bail our her two daughters who just haven't learned to manage money and say no to their impulse buying and don't earn enough to clear their debts. The easy availability of credit for 18 year-od school-leavers doesn't help.

  7. You gave your kids the best, Perpetua: enough help to give them a good start in life and a valuable lesson in financial responsibility. I agree with you that easy credit for 18-year-olds is a real trap -- getting so many inexperienced, impulsive young adults into financial trouble at the beginning of their adult lives.

    Rosaria, I understand what you mean about student loans holding one back. I had to make some difficult choices early on because of that debt burden as well, though things did turn out well eventually. I always told myself that the loans had made it possible for me to finish college and graduate school and that no one could take that education away from me. I paid off the loans gladly and gradually over 10 years. But being able to give your children the gift of a debt-free entry into their adult lives was wonderful!

  8. I have a step daughter who lives with her boyfriend and his family and just had a baby a couple of months ago. they just got pictures taken worth $75 dollars but then she said she needed money to eat ( which I found odd since they live with his parents), nonetheless my husband handed over$50 to her. I had suggested they go with us to the grocery store and buy them food for same amount but he felt this was better to himself. I feel she'll be coming back for more. personal note: we have a3.5 year old ourselves.