Chapter 10
Helping Your Kids Get on Their Feet
In This Chapter
- Coping in an expensive world
- Deciding if you should help your child financially
- Loaning or giving?
- Making sure everyone understands the situation
- Dealing with a not-so-empty nest
Your son, Charlie, graduated from college last year, the same year that your daughter, Patty, was married. Charlie stayed at home with you for a while, found a job, and now is ready to move out.
Patty and her husband just told you last week that they’re expecting a baby in six or seven months. All these changes are exciting, although a bit unsettling. You and your spouse are home alone now, perhaps experiencing a bit of the empty nest syndrome. You’re anxious as can be to hold a little grandson or granddaughter, but maybe a bit concerned that your daughter will be overwhelmed by the challenges of being a full-time working mom.
It’s natural to worry about and to want to help your kids. After all, they were your babies just a short time ago. You bandaged their knees, taught them not to run into the street without stopping first to look both ways, and sat with them until they went back to sleep after bad dreams. You held your breath as they drove off by themselves for the first time, cried when they left for college, and smiled bravely as she walked up the aisle to be married.
Your work with your children probably never will end. You’ll continue to worry, to offer advice, and to lend a helping hand. But how much should you help them financially? This is a tricky question, and a very subjective one. Some parents help out their kids financially their entire lives, while others cut the purse strings the day the child leaves the house.
In this chapter we’ll explore the possibilities of helping out your kids financially, and look at some of the areas in which they might need some help.
The Cost of Getting Started
It’s no secret that it costs a lot of money to live comfortably in America: housing, transportation, food, entertainment, and clothing. It all adds up . . . fast. And, when you’re just starting out on your own, managing your finances can be particularly challenging.
Let’s have a look at what it might cost for a college graduate who’s starting his first job in a city not within commuting distance from your home. Let’s say that Charlie grew up in Detroit, graduated from Michigan State University, and has landed a job in his field (computers, what else?) in Denver.
ACCRA, a nonprofit organization that started out in 1961 as the American Chamber of Commerce Researchers Association, compares the cost of living in various cities across America and produces a well-regarded Cost of Living Index.
According to ACCRA, it would cost Charlie just a little more to live in Denver than in Detroit. The average rent in Denver is $861 a month, compared to $802 in Detroit. If Charlie decides to stay in Denver and buy a house someday, he can expect to pay somewhere in the neighborhood of $243,424, which is a bit lower than the Detroit’s average home price of $258,350. Food costs are higher in Denver than in Detroit, as are medical and some other costs. On the whole, the cost of living in Denver is 0.07 percent higher than the national average.
Money Morsel
You can find ACCRA’s Cost of Living Index on the organization’s Web site at www.coli.org.
Regardless of whether Charlie lives in Detroit, Denver, or someplace in between, he’s going to need substantial funds to get started in a new city.
The question is, should you help him financially, or allow him to find out what the world after college is really like?
How Much Should You Help?
Only you can decide if, and how much, you’ll help your kids once they go out on their own. If you’ve supported him all his life and paid his way—or helped to pay his way through college, you may well feel, as many parents do, that you’re off the hook. You’ve gotten him this far, and now it’s time for him to make it financially on his own.
That doesn’t necessarily mean that you’ll never crack open your wallet and hand him a twenty or two. And you may still buy that lamp or set of sheets that you find on sale at the department store for Charlie to use in his new apartment. You’ll be happy for he and his girlfriend to share the big house you rent at the beach this summer, and you’re always glad to take them out to dinner when they’re in town.
Basically, however, you might feel that your days of being responsible for financially supporting Charlie have ended.
Remember, though, that we’ve been assuming Charlie has graduated from college and is heading for a fairly good job with a decent starting take-home pay. As you know, that’s not always the case.
But what if Charlie didn’t have the benefit of college and is trying to make it on his own with only a relatively low-paying job? Or what if he’s finished college, but hasn’t been able to land a job in his field? What if his girlfriend just told him that she’s pregnant and they’re going to get married? Or he’s been sick and unable to work? Or he’s trying to pay back college loans while getting started in his own apartment and pay for the car he needed to buy so he could drive to work?
Many young people come out of college seriously in debt. If he’s been to graduate school, he may be even further in the hole.
A recent survey by Nellie Mae, provider of more student loans than any other nonprofit firm in the country, shows some frightening statistics about college grads and debt. The survey of 2,500 men and women who had just graduated from college reveals that their average debt was $18,800. That’s compared with $8,200 average debt a decade ago. Students just coming out of graduate school averaged debt of $24,500. That includes education loans and other debt, such as credit cards and automobile loans.
Don’t Go There
A study by the National Foundation for Credit Counseling shows that 64 percent of all students graduating from college owe at least $1,843 on their credit cards. Twenty percent have credit card debt of $10,000 or more.
If your son or daughter has worked hard to get through college, took out loans to pay her way, and is struggling to pay off her debt so she can move ahead financially, should you help her if you’re able to? If so, how much?
This is basically a philosophical question, for which the answer varies dramatically from family to family. Some parents feel very strongly that their financial obligation ends when their child turns 18, while others continue supporting kids for years and years.
If you do decide to help out a son or daughter financially so he can move on or improve her current living situation, to what extent would you do so? Consider the possibilities listed as follows:
- You’ll repay his college loans, with the understanding that your financial obligations end at that time.
- You’ll give him the first couple month’s rent and security deposit for his new apartment.
Don’t assume that, if you decide to help out your adult son or daughter financially, that it gives you the right to control his or her life. If you feel that contributing money gives you a right to impose your opinions, be sure your son or daughter realizes that before accepting your gift.
Some health insurance policies allow you to include your child until she turns 23 years old. You may be able to help her out by keeping her on your policy until she gets a job that includes health coverage.
- You’ll continue to have her live at home, paying no rent and not contributing to any of the household expenses.
- You’ll set her up completely in an apartment and pay half of her rent until she’s financially established.
- You’ll buy a small, fairly inexpensive car for him to drive back and forth from work, and then tell him that your financial support has ended.
- You’ll promise to provide the down payment for his first house, regardless of when it is that he buys the home.
- You’ll promise to pay for her wedding, or to help pay for her wedding.
- You’ll give your child no financial support, either because you can’t afford to, or you choose not to.
All these are possibilities for ways you could help out your kids if you choose to do so. Let’s face it. Nearly everyone can use a little financial help now and then. Whether your child will get it from you, or have to see another source, is between you and her.
To Loan or to Give?
If you decide that you do want to help your son or daughter to get on his or her feet financially, should you loan money or give it outright?
Again, there’s no really clear answer. You may feel that giving your child money without any expectation of repayment is a loving act, or even a parental obligation. Or you may feel that the only responsible means of helping your grown child is to make him repay money, just as he would have to if he borrowed from any other lender.
You might base your decision of whether to loan or give depending on how much money is involved or whether you think your child will really appreciate a financial gift. As a society, we tend to use money for many purposes, other than simply buying what we need and want. Some people use money as a means of control or to manipulate another person or a situation. Some people give money in an attempt to patch up old wounds or reconcile a broken relationship.
If your grown child is buying a home and you want to help, ask your accountant or financial advisor about the possibility of finding a financial institution that allows you to pledge securities instead of selling them, allowing you to give the cash down payment to your child.
Some thoughts to keep in mind if you’re considering loaning or giving money to your grown child are as follows:
- Maybe you’re in a financial position that allows you to comfortably loan or give money to a grown child. You’re responsible first for your own financial future, and jeopardizing it will not help you or your child in the long run.
- Don’t loan or give if it causes problems between you and your spouse or partner. Again, creating trouble for yourself will not make your child happy, and you may end up resenting her for taking the money.
- Don’t attach conditions or strings if you loan or give money, other than how the loan will be repaid. Loaning your child money for a home does not mean you get to choose the house and all the furnishings.
- If you loan or give money to your grown child, don’t be judgmental about the reason for which they need it. Don’t, for instance, point out that you’ve never taken a cruise and perhaps their money could be better spent elsewhere. It’s your decision whether or not to offer money. If you do, be gracious about it. You’ll only breed resentment by questioning their judgment.
- Be sure that you’re comfortable with loaning or giving money. If you suspect that your daughter’s marriage is in serious trouble and that your soon-to-be-ex-son-in-law may take off with your $10,000 loan, hold off for six months or a year until you see how the situation resolves itself.
- Don’t loan or give money to try to patch up a rocky relationship you have with your grown child. Your money would be better spent on family therapy. As The Beatles told us decades ago, money really can’t buy you love.
Regardless of whether you decide to loan or give money outright, it’s extremely important that everyone understands exactly the terms of the arrangement.
Keeping It All Up Front
As you no doubt have found out along the road of life, money can cause major disagreements amongst family members.
In a survey of married couples, more than half of them said that, sooner or later, money is the most important concern in marriage. Many of the couples also said that money is their most frequent source of disagreement.
If your child has proved to be consistently irresponsible, you shouldn’t loan him money. If he’s not repaid you for loans in the past, or is not working to get money on his own, there’s no reason you should enable him to continue being unaccountable for his actions. You want to help, but you’d actually only be encouraging his irresponsibility.
What parent hasn’t argued with her kids about money? What kid hasn’t argued about the green stuff with his folks?
The point is, money can be a volatile subject, especially if the parties involved have different views or expectations concerning that money. If you give money or make a loan to your kids, everyone had better have the same understanding of the conditions. There’s no way you want to hand over $10,000 with the assumption that you’re going to get it back, while your son and daughter-in-law are thanking you profusely for your gift. Talk about a sticky situation!
When you get a loan from a bank, credit union, or other lender, there’s no question about how it will work. You’ll fill out a loan application, and a loan officer will do some sort of credit check on you. That’s to be sure you don’t have a history of skipping out on loans or have so much debt already that there’s no way you’re going to be able to repay this loan.
Once you’re approved for the loan, you agree to pay off the amount of the loan and the interest, set at a certain rate, over an agreed-upon period of time. If you don’t pay it, you face serious consequences, including the loss of the home or auto for which you needed to borrow money, or legal action.
If you loan money to your grown son or daughter, the first thing to do is to make sure everyone understands that the money is a loan, not a gift. Cement this understanding with a written agreement. If an agreement concerning money isn’t put into writing, it can tend to become a little fuzzy over time. You might think your son already paid you back, when he’s really only returned half of the money. Or your daughter may just forget to give you your payment some month.
Decide if you’re going to charge interest on the loan. If you do, it presumably will be lower than what a lending institution would charge, but the amount of interest you set is up to you. Write out the terms of the loan, and make sure both you and your child sign it.
You may want to include a promissory note, which is a written promise of repayment by an agreed-upon time.
You could ask your lawyer to draft a simple loan agreement, or type up your own agreement on your computer. Just make sure it includes the following:
- The names and relationships of all involved parties
- The date the agreement is acted upon
- The amount of money loaned
- Interest rate (if applicable)
- Over what time period the loan will be repaid
- At what time intervals (week, month, etc.) the loan will repaid
- The amount to be paid at each interval
- Signatures of all involved parties, including two witnesses
Adding It Up
A promissory note is a written document in which the person who receives the loan gives unconditional promise that he’ll repay a specific amount of money to the lender, either upon demand, before, or on a certain date and time.
An online source of free legal forms is Work-At-Home, located on the Internet at www.visitorinfo.com/Work-At-Home/free-legal-forms/free-online-legal-forms.htm.
Or you can get copies of basic business forms from a business supply store, or find forms online that you can download and use.
Regardless of how you decide to make a loan official, be sure that all parties understand and agree to the conditions of the loan. Being casual about lending money—perhaps especially to a family member—is not a smart move. Many families have suffered irreparable damage over money issues, and you certainly don’t want yours to become one of them.
It’s equally important that your son or daughter understand if you’re giving the money as a gift. Just make sure everyone is on the same page, regardless of the conditions you place on the money.
Boomerang Kids
Sigh . . . your kids are out on their own. The house is tidy and quiet. You don’t need to stop by the store every other day for milk, bread, and orange juice. You and your spouse or partner are free to come and go as you please. You’ve even started playing tennis together again for the first time in 15 or so years.
Just when you think you’ve got it made, one—or maybe more than one—of the kids is back.
There are about 65 million boomerang “kids” between the ages of 18 and 34 who still live at home with the folks. The reasons are many. Some young people try, and find out they simply can’t manage on their own. Some experience emotional, health, or psychological problems that prevent them from living on their own. Others simply realize a good deal when they see it, and continue to hang out where life is easy and they’ve got it made.
If you’re making life at home so wonderful that your child is reluctant to leave, you need to take a look at what’s going on and decide how you’ll handle the situation. Perhaps you don’t want him to go. While that may be understandable, it’s probably not the healthiest situation for your kid. Providing free room and board, along with laundry and housekeeping services, isn’t giving your son a very accurate view of the real world.
While we all love our kids, most of us don’t want them hanging out with us forever. It’s natural and healthy for children to move on and establish lives that are independent of ours.
Experts give the following advice for dealing with those boomerang kids who just can’t seem to leave the nest.
- Determine an amount of time the adult child will stay with you. Help him to set a goal of getting out on his own. Offer to have him live with you for a year, and then urge him to find his own place.
- Encourage your dear one to get out on her own by saving the rent she gives you while living at home, and giving it back to her—with whatever interest you’ve earned on it—at the end of a year. Do so, however, with the stipulation that she uses the money to cover her first month’s rent or to pay the security deposit on an apartment.
- Determine up front what she’s expected to contribute. Discuss what you expect her to pay to live at home, and what she’ll do to help with household chores. Will she be responsible for doing her own laundry, for example?
- If your child’s not working and can’t afford to contribute financially, make sure he does his part in other ways, such as lawn work or cleaning.
- If your child is in trouble with credit card or other debt, resist the temptation to bail him out. Do, however, encourage him to meet with a credit counseling service to work out how he’ll repay the debt.
- Be sure she has the insurance she needs. If she’s no longer covered under your health care policy and has no health care benefits of her own, she may need to get individual coverage. Also, make sure she has auto insurance.
- If your child is a full-time student under the age of 24 or earns less than $2,900 and you’re footing the bill for more than half of his support, you may qualify for a tax deduction. If you’re a single parent providing more than half of the support for your adult child, you may be able to get a tax advantage by filing as head of household instead of a single taxpayer.
Whatever you do, don’t make your child feel that she’s failed by coming back to your home. She may be no happier about the arrangement than you are, and likely feels bad that she’s had to come home.
Discuss problems and issues as they arise, be straightforward about your expectations, and be patient while your child gets himself back on his feet.
The Least You Need to Know
- Your son or daughter may need some financial and moral support when just starting out on his or her own.
- Whether or not you’ll help your adult child financially is a personal decision.
- If you help your child financially, you’ll need to decide whether you’ll give the money as a gift or a loan.
- If you loan money, make sure the terms of the loan are written down and everyone understands the agreement.
- If your grown child moves back to the family home, you should establish some ground rules up front.