As most of you know, my favorite personal finance book of all time is The Millionaire Next Door
.
It’s not because I think it’s “the best” personal finance book (I don’t know if there is one that I’d label the best, though I have named my top five) or because millionaires read it more than any other money book. No, it’s more personal than that.
I love the book because it came out around the time I was beginning my career/marriage/adult life. I read it, applied what it said, and I became wealthy.
There’s a bit more to it than that, of course, but the book was a key part of shaping my money philosophy and helping me accumulate wealth.
As I noted in my review of The Millionaire Next Door, the book highlights seven common denominators among those who successfully build wealth. They are:
- They live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
- They believe that financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care.
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
Most of these are self-explanatory, but one that always puzzled me is #4:
Their parents did not provide economic outpatient care.
This was kind of a throwaway issue for me since it wasn’t anything I could influence or control. But these days, this issue is much more on my mind.
Defining Economic Outpatient Care
Before we get too deep in the topic of economic outpatient care (EOC), it’s probability best to take a step back and define it so we’re all on the same page.
In the book they cover EOC in chapter 5, describing it as follows:
Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren.
Ok, so it doesn’t seem that bad, right? Don’t parents love to help their kids (assuming they can) financially? Don’t they want to make it easier for their kids to have a good lifestyle?
Yes, they love doing those things. But the problem is, it’s bad for everyone involved.
The book goes on:
Those parents who provide certain forms of EOC have significantly less wealth than those parents within the same age, income, and occupational cohorts whose adult children are economically independent.
And, in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.
It’s counterintuitive but the data show that the more kids are helped financially, the worse off they are financially.
As the chapter continues, it discusses kids who live high on the hog because their parents supplement their income with gifts.
Consider this:
More than 46 percent of the affluent in America give at least $15,000 worth of EOC annually to their adult children and/or grandchildren.
The book goes on with some startling stats:
- 43% of the affluent fund tuition for grandchildren
- 32% of the affluent fund tuition for adult children’s graduate school
- 59% of the affluent provide financial assistance for their kids to purchase a home
- 61% of the affluent don’t make their children pay back loans
And the list goes on and on.
BTW, the book is generally supportive of paying for a college education since that tends to make the kids more productive/self-sustaining.
So What’s the Problem?
Now some of you may be wondering, “What’s the big deal? Why is it an issue if I help my kids out a bit?”
Well, let’s read on:
Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive. Cash gifts are too often earmarked for consumption and the support of an unrealistically high lifestyle.
But it’s not all bad news:
Does this mean that all adult children of affluent parents are destined to become [unproductive]? Absolutely not. In fact, stated as a statistical probability, the more wealth parents accumulate, the more economically disciplined their adult children are likely to be.
But that’s the only bright spot in the chapter.
It goes on to list four findings as follows:
- Giving precipitates more consumption than saving and investing.
- Gift receivers in general never fully distinguish between their wealth and the wealth of their gift-giving parents.
- Gift receivers are significantly more dependent on credit than nonreceivers.
- Receivers of gifts invest much less than do non-receivers.
And then they highlight this in bold:
The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more.
Ugh.
My Parents and Economic Outpatient Care
The reason EOC wasn’t an issue for me is that my parents didn’t give me much of it. And they certainly didn’t once I became an adult. After all, by the time I was out of grad school, I was making more than they did.
Even during college I had little help. The Cliff Notes version of this is:
- My parents were divorced when I was in third grade.
- As part of the divorce settlement, my mom accepted a lower child support amount in exchange for my dad’s commitment to fund my college costs when the time came.
- When the time came, my dad was broke and his third wife wasn’t interested in paying for my college.
- My mom and stepdad weren’t interested in paying for it either since they felt my dad was obligated.
- So…I was on my own.
Thankfully I was a good student (academic scholarships), was involved a lot on campus (leadership scholarships), worked a ton (staff assistantship), was poor (federal grants), and could rely on my grandmother for an occasional loan.
When I graduated with my MBA I only owed $5k to my grandmother and I paid it all back a couple years later.
There was little EOC coming my way. Hence, no issue.
My Children and Economic Outpatient Care
Here’s where the issue is for me…
I now have adult children.
I have the means to help them out financially.
How much EOC (if any) can I give them without causing harm?
Unfortunately it’s a question that doesn’t have a great answer.
Some parts of the book imply you can give something and be ok:
Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren.
If your gifts aren’t “substantial”, are they ok?
Other parts of the book appear to say they are not:
The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more.
This implies that for every dollar given, there’s harm being done.
And this is not only a current issue we are grappling with, it’s also an estate planning issue. How much do we leave our kids when we pass?
We’d like to help them out but not cripple/damage them with too much wealth. So what is the right amount?
Asking for Help
Since I didn’t know where to go to find the answer, I turned to the source.
I contacted Sarah Fallaw, the daughter of Dr. Thomas J. Stanley, the author of The Millionaire Next Door.
Sarah updated her dad’s work in writing The Next Millionaire Next Door
which I also loved.
She also wrote the guest post Self-Reflection: A Critical Step Before Really Pursuing Financial Independence for ESI Money.
I sent her an email asking how much economic outpatient care is too much?
Her thoughts boiled down to the following:
- It’s a great question.
- Her company (DataPoints) is doing research in this area.
- They don’t have any findings ready to publish at this point.
- Hence, there aren’t great guidelines on this for parents.
Ok, so for now we’re stuck trying to figure this out for ourselves.
How I Plan to Address the Issue
Given the lack of concrete guidance, here are five steps we plan to take with our children:
1. Start small.
I think it’s wise to begin any giving to adult children with smaller amounts. I believe the biggest issues are likely to arise with large sums given in bulk, so we can potentially limit any damage by keeping the gifts small.
2. Give and watch.
Once we give, we will watch and see what they do with the gifts. If they are blown or used to inflate a lifestyle that can’t be sustained without the gifts, we will need to adjust (which will likely mean a cessation of gifts).
3. Give directly to the cause.
Instead of giving cash, we can provide for the need or pay it directly. For instance, gift cards for a specific need (like to a grocery store to cover food costs) are harder to use to create an unrealistic lifestyle. We could also pay bills directly if need be (like utility bills, rent, etc.)
4. Provide gifts in unique ways.
Instead of giving extra cash, we could pay for extras that the kids may or may not be able to afford themselves. The best example of this for us is likely to be vacations. As long as they are able and willing to go, we’ll probably cover our kids’ costs to go on vacation with us. We are paying for them to be with us in Florida next month and will probably take them to Grand Cayman in January.
5. Avoid dependence.
We don’t want them to get to the point where they NEED our support to afford their lifestyle. If it’s a hand up here and there, no problem. But if they MUST have so much from us each month to make their budgets work, that will be a problem we need to address.
Anyway, those are my thoughts on the issue. They are still in development and subject to change, but I thought I’d throw them out there and then let you comment with your thoughts, guidelines, experience, etc.
So with that said, what do you have to add?
Charity begins at home. Having said that, and have read The Millionaire Next Door, we gave very small gifts of cash on Birthdays, and at Christmas time. When we helped our children, we discussed it with them and made small loans , without interest. I will help my remaining child, should he have a defined need, and will invest his payments for him. This is done with his deposits into an IRA in his name. So far this has worked quite well for both of us. Appreciate your take on this, great issue to pursue.
The real question to me as a parent why try to accumulate wealth if not to give children a better life? Most adult children believe that their parents wealth is or will become their wealth “an inheritance”. In general, I don’t believe that children or anyone values money they did not earn. All of my children have a college education in their chosen field. They will have to live below their means and ESI. I am not planning to leave an inheritance to my children however I doubt I will be able to spend everything I have accumulated. Any money my adult children will receive I will give while I am alive. If there is any appreciation for giving the money, I will be alive to receive it. I will enjoy my life and let my children live their lives. My biggest gift that I will give them is they won’t have to take care of me.
Good read. I’m years away from this decision, but I’ve thought about it a lot. I want to build wealth and habits that will be passed down for generations. I plan to pay for their college since graduating college debt free was the biggest financial gift I wasn’t given and helped me start my path to FI right.
One thing I’ve considered is gifts that build good behaviors like matching retirement account contributions. Thoughts?
I always like the idea of rewarding good money decisions, so matching retirement contributions seems like a good idea to me.
I am too “old school”. I believe a adult child should ESI as you advocate in your blog. I don’t think an adult child should be rewarded by parents for making good money decisions which will benefit only themselves.
This was exactly my thought. Perhaps a great way to help your adult children is to use gifts to “nudge” them towards smart financial decisions — gifting them whatever they contribute annually to their retirement accounts (minus any withdrawals), or some type of match based on what they contribute. I’m years away from this, but when my kids get old enough to have part time after school/summer jobs, I’m hoping to sit down with them and match them dollar for dollar on anything they save into a Roth IRA, for instance.
You could also gift based upon total debt paid down — if you kid is really attacking student loans/credit card debt, etc. and on a path towards being debt free, you could create some type of match to encourage this behavior.
We did this as well, offering a 100% match for our son on a Roth IRA from his income from his internship which also encouraged him to keep a small monthly investment going afterwards on his own. Happy to see him continuing saving even while he is in school.
I agree with all your 5 points and have used all of them in trying to ween my 25 year old off of his dependence on the parents. After 7 years (and my financial support), he finally graduated from college and now is looking for a job that pays more than his current job at 11.00 an hour. I’ve moved him off of the EOC but he’s struggling with the lifestyle he wants and what’s concerning to me is that he has a perfect girlfriend with a plan and (some money) to augment the lack of EOC from me! I tell him that he needs to get a second job on the weekends to at least start to save some money for the “rainy day things”. Of course he is in a generation that is unwilling to make sacrifices (give up a weekend or two) to interfere with his social lifestyle. I’ve been a good roll model for him in what it takes to be successful in life and to achieve FI but falling short with cracking the code with my son. You probably can write a book on this subject alone!
Great post, ESI, and a topic that all who build wealth must consider closely in my opinion. Two points to share: my own experience with my parents and what we are now doing with our own kids.
After receiving a full ride scholarship at a service academy, my folks decided to gift me a large lump sum that they had saved for my college costs. While I did a few productive things with that money, most of it was blown, as many in their early 20s would likely do! Worse than not making smart decisions with the funds, the gift, while extremely kind, reinforced a mentality that I could enjoy nice things while being sloppy with money. It took me a decade to finally get my financial act together. I certainly don’t place any blame on my parents, as their heart was in the right place, but have vowed that I would not do the same with my own kids down the line.
We soon found ourselves in the same position, with a child that we had college savings for who decided to join the military and therefore earn his own GI Bill, which will cover his college costs. My wife and I also decided to gift him some of the savings, but with heavy caveats and constraints. In order to ensure that he establishes his own positive financial track, avoiding all debt and beginning a large percentage of investment savings early on (which together also necessitates being intentional to live on the remainder), we incentivized him by splitting our gifting into the five years of his military commitment, with him required to show an x percentage of retirement savings over the year, incurring no debt and opening no credit cards (a kiss of death for many young adults). When he shows this at the end of each year, he receives 1/5 of our gift. Of the gift amount, half must be also be put towards FI investing while the other half is put into a CD, becoming available after his five year commitment is up, earmarked for a large purchase (home down payment, starting a business, etc.). While same may find this over-controlling, it is all 100% optional and tied only to our gifting of the college money each year. While there is no guarantee this will set a young adult on a solid future financial path, we figure it’s the best we can do to establish healthy habits with money in the pivotal years of 18-23 years old, both for habit building and long-term growth potential with investments.
One added benefit is that our remaining children are now more motivated to secure scholarships, knowing that this option is available to them to help kickstart their long-term investing along with their own efforts.
Final thought – also plan on bringing adult children along on some vacations as another way to enjoy memorable times together without altering their overall habits with money.
Looking forward to hearing others’ thoughts and ideas!
Christmas presents were small and negligee when I was growing up, but there was usually an envelope with money in it which was promptly used during after-Christmas sales to buy new shoes, coats, etc. the result was that receiving money was not considered a free ticket to splurge.
After all three of my parents’ girls were adults, we would get “early inheritances” such as a piece of land or money earmarked for investment only.
My parents also gave $10k birth gifts to each of their three grandchildren with the stipulation that it be invested for college. They gave one grandchild a $10K 10-year CD (certificate of deposit, not music) at 11.45% interest bracket in the mid-1980s. It was a chunk of money for college which he matched with academic scholarships.
They also funded house mortgages from what we called the “family bank”, but these were official loans as if we were not related, notarized and recorded at the county courthouse. Naturally, we paid promptly! They encouraged early payoffs, and we did so.
Even with this generosity, all three girls and grandchildren grew up to have very solid money sense.
I received a one-time gift of $4k in my mid twenties (actually it was part of a split inheritance from my grandmother’s death). The timing couldn’t have been any more perfect because prior to that I had picked up and moved across the country for the “California dream”. It was totally whimsical, I had no plan, no car and just a small chunk of money in savings, which I was burning through rapidly while maxing out my credit cards. That seed money allowed me to get a car, and eventually a job.
This is something I am going to struggle with regarding my daughter.
It is hard to deny a child if they truly are in need but I can see how that can be a slippery slope and soon wants become needs and they will expect handouts and become truly dependent.
I was amazed that Bill Gates was only going to give a relatively small amount of money for his kids for inheritance (still millions but not the billions he could have). But it is a trend the very wealthy have started. They are obviously very smart so must be on to something.
This post resonates with the experience I’ve seen with EOC and adult children becoming dependent on their parents again. I’ve seen peers receive home down payments as gifts, with little to no gratitude involved. There’s a comfort level to carrying debt like student loans as an adult if you know the parental safety net (and ultimately an inheritance) will be there to wash away your financial mistakes one day.
Regarding #3 paying for things directly… We know money is fungible. A gift of $100 for gas or groceries frees up $100 of that child’s own money for things you may not want to support (tobacco, drugs, Target runs).
It is hard for parents to see their adult children not care about finances. Still, intervening rarely gets the results you want.
Interesting read. I just finished reading this update about the ultimate EOC, a socialite who was on a $1,000-a-week allowance and killed his dad when it was cut because he wasn’t going anywhere in life: https://nyti.ms/2nkKKD3
On the other hand, I would take some of the “findings” in the book with a grain of salt, mostly because I am not sure they reflect the realities of young people today. Specifically, the cost of college has skyrocketed as state governments have decimated their contributions since the Great Recession. As wages have stagnated, it’s not all that realistic to expect most college students to be able to graduate from college with zero debt by relying on scholarships and working part-time jobs. So parents paying for college seems not so much a handout as what good parents ought to do (or a smart investment, if one must insist on seeing everything in terms of returns).
I think more generally, financial support contributed to education is (mostly) smart, while money given for other purposes- maybe not so much.
I think you missed the part where he says the book is for paying for college.
Great discussion. We supported our son through undergraduate college years for the essentials combined with a good scholarship, and he paid for the rest via work. He is now in grad school with a fellowship. We handed over the rest of his college savings in a lump sum and have taken him off the “payroll” for all routine costs. We just made the decision though to pay for travel home (and I assume future joint vacations). It was a way to encourage him to visit more 🙂
I imagine that if he for some reason needs help such as needing to pay for a extra year of his PhD program or something else we would discuss it esp. based on how fiscally responsible he will be ( so far he has been very good saving a lot of what we have him for room and board as a college student).
Great blog and timely for us. We have 2 teens in early college where they can get 2 years college free by HS graduation. We told them we could help them with car and other early life costs going this route. Main goal we have is no debt for college and good appreciation of ESI. I worry about taking them on vacations now and then they figure out how expensive life is in 5 years. We also need to model ESI lifestyle. Thanks for bringing this issue out in the open for this community to learn.
What do you think about putting kids on your payroll rather than seeing if they can find a decent paying job on their own?
Well, since I currently employ both my kids, I’m ok with it. 😉
But in those cases they are earning the money paid. The issue above is more related to giving them money without any work.
We are looking at private school and college for both children (we just had a baby son 2 months ago). Beyond that they will need to stand on their own to earn income.
I’ll also be teaching them to save and invest provided that they are willing to listen. It has to be fun for them so it aligns to their own interest so it’s a question to see if this happens naturally or not. Either way, I’m okay with it.
The rest of the money will be spent on us or to charity. I find it instructive to follow what Buffett and Gates are doing with their money as they have thought about this for far longer than I have.
-Mike
As a 30-something with young kids, I have very mixed feelings on this issue. My in-laws are very well off, and we have received gifts in several forms. The first is vacations – we are often invited and are only responsible to pay airfare, if even that. The second is investments on our behalf – at times, they have put money into investments in our name. The third is by opening up investment opportunities – we are often invited to participate, in whatever amount we desire/are able, in closely held investments in assets that everyday investors don’t typically have the means, know-how, or connections to invest in.
With the vacations, the result is that we travel more often, and to much nicer places, than we would if we were footing the bills (especially now that we have our own kids – 4 plane tickets vs. 2 is a killer!). A side effect is that when we do travel on our own, we want to stay in nicer places because it’s what we’re used to.
With the investments on our behalf, these haven’t really had much effect – they’ve been primarily speculative and/or very long term investments, so while they may add to our net worth, they don’t provide much if any cash flow.
With the investment opportunities, these definitely have lessened the pressure on us to learn how to invest for ourselves. I’ve taken baby steps toward learning how to evaluate potential investments on my own, but it’s safer to leave the decision-making to the experts (in-laws) and just put up some capital.
ON the other hand, we have done quite well for ourselves with overall gross income exceeding $300k, NW well over $1m, and being generally good savers and earners. We also give generously to charity – $70k-$80k per year the last several years.
While we don’t ever ASK for EOC, we are recipients, even if only indirectly, and I can see that it stunts our drive to excel in some areas. Fortunately, I think we have done a pretty good job of charting our own path. I do worry some about my children. They’ve been on more nice trips in their first few years of life then I went on in my first 25 years, and I’m not sure what effect that may have on their life outlooks long term.
Your comments hit home to me until you got to the $300K gross income and net worth well over $1M. Jonathan, I am curious as to what you do for a living to earn $300K. If you give $70-$80K to charity per year, it seems to me that you wouldn’t have much trouble paying for plane tickets would not be much of a burden!
To clarify, we can certainly afford plane tickets, but as a saver at heart, buying four plane tickets (especially two for tiny people) makes me cringe sometimes!
Regarding our income, combined salaries are under $200k, but my bonus and ownership distribution in my company (small engineering consulting firm) adds another $50-70k. We also have lumpy investment income that is another $50-80k, but not all of that is cash income – some is principal paydown or other unrealized income.
Jonathan- I’d love to hear more about your charitable giving.
$70-80K/year is a very large number (25% of gross income!). I’d love to know what organizations you give to and how you came to choose them. Have you always been so generous, and how do you reconcile large charity gifts with the desire to retire (a trade off I often struggle with).
Given your net worth, maybe do an interview on ESI?
My family has been deeply involved with a particular faith-based organization for many years, to where we now serve on its boards, and this is the main recipient of our giving. We know the people, the projects, and the finances and know our money is going where it’s intended to. We also give to our church, various other ministries, and to individuals raising money for this or that, which represents about a third of the giving.
We made a conscious decision to give generously probably 9 or 10 years ago by recognizing that (a) there are serious needs in the world now that can’t wait, (b) even with generous giving, we are likely to become quite wealthy over time, and (c) most importantly, it would be very difficult to one day flip a switch of generosity if our focus had been only on earning/growing NW over the years without giving in the interim. Without starting NOW, we will likely never be able to give freely.
Since then, we’ve given away close to half a million dollars. This represents more than a third of our current net worth, and yes, I do consider our desire to retire early and how this impacts the ability to do so. But how can we literally choose to let a refugee freeze to death, or a child die of malnutrition or lack of access to basic medical care, just so that we can have more free time at an earlier age? We already lead a privileged life. So, what I really struggle with more is, shouldn’t we do/give more?
I have a post about this coming up in late November…
Your commitment to help others is a great gift. Giving to help others is not just money, it is also time. In fact, your time is more important than money. You know how much money you have but no one knows how much time. I am from a family that believes in volunteering. Serving at church, on charitable boards, literacy centers, advocate for foster children are just a few of the charities. I also a have a Fidelity charitable gift fund which my donations are in various mutual funds. The Fidelity gift fund investments allow my donations to grow. I give grants to charities from this fund. At my death, I can designate someone to continue to give grants.
Jonathan-
I agree with your viewpoint. I struggle with two items:
1. We give about 10% of our gross income to charity and have for over a decade. This has certainly delayed our retirement (hard to say how much, but probably a few years at least). As much as I want to retire early, I too recognize that people are suffering now and we are very wealthy by world standards. It doesn’t take much $$ to save a persons life.
2. When we get to the point where we can afford to retire, is it ethical to do so? If we can continue to earn >$200K (after tax) and donate 100% to charity, is it right to walk away from that? With all due respect to those who give their time to charity after they retire, I’m fairly certain that giving large sums of $$ to charity in a each year far outweighs the impact I could make by donating my time. $200K can save many, many lives. According to research, $200K could buy enough nets to prevent death from malaria for about 60 people (and prevent suffering from the disease for many many more). Me working 40 hours a week at my church or at a local charity certainly won’t result in saving 60 lives. My expertise is maximizing my earnings in my given field. Other peoples expertise is finding where charitable $$ are the best used. Just like they wouldn’t be nearly as effective in my industry, I don’t pretend that I would be an expert in running or working for a charity.
I’m in a different boat to many people commenting here, as I’ve been a single parent to 4 boys for the last 22 years.
The child support I received was spasmodic for many years, so I supported my family on my teacher’s wage. The boys grew up watching me stretch every dollar, but we also went on some nice holidays to Bali, Thailand and Singapore and they were given all of their needs and some of their wants.
They were always told that I’d foot the bill for education up to the end of secondary school, then they were on their own… but they were expected to get a qualification, whether it be a Uni degree or a trade.
My belief is that the greatest gift I can give them, now that they’re adults and starting their independent lives, is for me to NEVER be dependent on financial aid from them. We’ve talked about this and they’re fully on board.
So they’re responsible for their own student loans and for paying their own way, while I’m focusing on building up my net worth for retirement.
My one rule is that if you live with me and you’re studying, you live for free. Once the course ends – you pay $50/week board. It’s dirt cheap, but it gives the message that life isn’t a free ride. (I’m banking the board that son 32 is paying – I figure I’ll give it to him as a lump sum when he gets married. He doesn’t know I’m doing this.)
All 4 boys are happy with this. One is an accountant, one is a music student, one a remedial masseuse and the last is doing an acting degree. 🙂
Oops… typo. I don’t have a son 32… I’m too youthful for that! I meant to type “son #2.”
I agree with you. There is a old expression “One mother (father) can take care of five children but five children can’t take care of one mother (father)”. Great, that you have decided to increase your net worth so you can take care of yourself and have a comfortable retirement.
I tell my adult children that paying their own way in life will build character. I have many, many character building experiences on the road to ESI.
This is something I think about often with two young kids. I’ve had friends who seemed to not work as hard as they could because they expected a big inheritance from their parents. I will do my best to find the balance between giving my kids a good start without spoiling them too much, assuming we have the financial means to do so.
We charge our 18 yo $100/month for car insurance and gas. She pays for college(JC for now) expenses. We provide everything else while she lives at home. She has to pay by the 4th of every month or late fee of $15 happens. There was a learning curve. We told her to use phone calendar reminder and did kindly remind her to pay on time. We also told her that if she doesn’t have the cash, she can pay by check. Four months ago, late fee kicked in. Since then, she has paid the bill on time with a check. Ha ha. Lesson learned.
She learned how to stay on top of bills and write checks. Of course, she needs to keep checking account balanced… There are always teaching moments.
I have showed her our electric, cell phone, credit card, and water bills. It helps put the seed of expenses in her head. It helps her realize that she has it pretty good.
My general philosophy is to ask the question: “do you know anyone who has a trust fund or has inherited a lot of money following the early death of parents who has been made a better person by that money?” No one can usually cite and example. As a result, our will involves the majority going to charity, and the money going to my children is metered out via a trust over (a very unusual according to my attorney) 20 years or age 45 rather than being lump sum. If they “need” their inheritance faster than that, then they clearly don’t really need it.
I think you will find your sentiments shared by many high-net worth professionals who are also religious & conscientious. I know various multi-millionares (I’m NOT one of them 🙂 -who choose to keep earning in order to give charitably & help out their churches, family, friends, etc. (of course it has to be done rationally to actually be of holistic benefit to the community-& not squandered).
I have 2 adult children, whom we always treated the same financially, yet one is ESI-savvy while the other is living paycheck-to-paycheck, so I don’t necessarily think we have complete control over how our children will handle money in their adult lives. We can be open and honest with them about expenses and costs of living, be good role models by visibly following good ESI rules in our own lives, and not be too “generous” with cash gifts. I like to be generous, so I satisfied my penchant for giving in other ways – I always celebrated my annual bonus with everyone in the family getting a “smallish” gift, and I save/invest the rest. I did not give them cash, but bought them something they wanted, but were not dependent on (e.g. a new iPhone or a shopping spree for new clothes) – to me that’s a true gift. They were always surprised by it, never expected it, and we had fun deciding what to buy them.
We never paid any of their debts or monthly bills, but eventually we saw one child set up a savings plan and 401K, while the other bought a new car and motorcycle. We gave them our opinion of this, but they were adults and at that point made their own decisions. We would occasionally give them interest-free loans if they were struggling with a bad period in their lives (both needed this at some point), but always set the repayment schedule at the start of the loan.
When my husband received a substantial inheritance, we gave them both a cash gift, an “inheritance from Grandpa”, along with suggestions on how we would like them to use it. They were both very surprised and very appreciative – and one child put it in savings toward a down payment on a house, while the other blew it in 6 months. Lesson learned for us, even today. They are in their 30’s, both living independently, but not with the same approach to money. Don’t know what we could have done differently – I think in the end, you do the best you can as parents (financially and emotionally), and then let them go and live their lives.
My parents both saved a ton of money over the years. My dad was a VP at GM. My mother was a school teacher with a masters degree. Literally we would live off my mothers salary and save my fathers. Now that they are retired, and have hit 70+, they are required to take a ton in RMDs. They don’t know what to do with the money. They own their house, they spend 5 months a year traveling, etc. but they have to take more out of their retirement for the RMD than they need. So they divy it up three ways and give it to their kids as gifts each year. We are in our 40s, have jobs, have college degrees, have kids, etc. So for us, it depends on each family and what they do. I spend like 10% of it and put the other 90% in investments. I bought a sauna last year with mine and put the rest in my investment accounts. My kid is out of college and I am single, with a paid off house. My expenses are less than $1500 a month (aside from those that come out of my paycheck, but that is another story). My siblings are in a similar boat but their kids are younger.
I understand the concept of people only surviving on the economic outpatient care, but if it is truly used as a gift, and you are not expecting it, and actually requiring it to survive, then I don’t see the harm. As my dad says “It is better to give away money slowly over time, than get it all at one time and depending on who is President, taxed the living sh*$# out of it.”
Good post and responses here.
My wife tends to be more generous financially with our kids ( early 20s) than I would like, but my plan is to continue to work with each of them on investing their savings, particularly in retirement accounts. Hard to get them to max out their contributions.
When grandchildren come along, immediately start with small contributions to education funds. I may also make small contributions to Roth IRAs, just to get them started.
My goal is to influence positively and hopefully help with savings mentality momentum.
My parents paid for my college, but I think the best gift they gave me was an understanding of the value of money and the pawer that it has. My dad had me open an contribute to my IRA when I got my first job at 14. I have been allowed the financial freedom to make my own mistakes, but my parents have always been open about talking about money – what to do with it and spending/saving wisely.
My husband was rasied a little differently but is on board with our agressive savings plan with a few comprimises. He is a master at finding bargins to save money on the things we need which allows us the opportunity for the occasional splurge (typically on travel). His sister on the other hand is the polar opposite of him/us. She was essentially given anything she wanted growing up and that did not translate well into adulthood. While she makes a decent living, she’s made several finincal mistakes that put her in a hole and she continues to live the lifestyle she’s used to instead of working to get herself out of debt. Mom and Dad continue to come to the rescue providing a car, money, and now room and board without much talk about getting back on track. At this rate they’ll end up buying her a house and continuing to give her money. It is frustrating to see and definitely puts a strain on other family relationships. On that note, I would echo that parents (grandparents, etc.) footing the bill for family vacations has the opposite effect on family relationships – they definitely bring people together. I wouldn’t trade the “free” family vacations I’ve been a part of in my adult life for any amount of money.
We see the value in understanding the pitfalls of EOC. Our view is that too much of anything is harmful in the end, so finding the right balance is key. For both my wife and I, parents did enough to ensure we got a college degree. I was fortunate to have gone to a college that was not expensive and that I could stay at home, so graduated with no debt.
My wife and I are immigrants and so EOC from parents or family was out of the question. None was expected and none could be given. Failure is not an option for us, we had to work and build ourselves up over time.
If all goes well, we expect to have a net worth of $10 million or close to it by the time we are at retirement age. We expect to leave some chunk of assets to our kids. Life in America is becoming tougher and tougher for working people. Work is still looked upon as good and glorious but our tax policy favors the wealthy and capital. I personally expect taxes to go up in the near future, plus the cost of health-care and education to continue climbing much faster than inflation and income growth. Housing is becoming out of reach for a lot of people in places like NYC, San Francisco etc.
I hope and expect that our kids will do well in life, but we are also fully prepared to help to ensure that their quality of life is good.