Last week I questioned my in-laws decision to fund the down payment on a house for my brother-in-law. The questions at hand: when should parents provide financial assistance for their children, how should they provide it, and what will their children learn as a result of that assistance?
A recent Money article, What You Owe Your Kids, sums up the issue perfectly. At the root of each financial gift parents should ask themselves “whether giving kids money will speed them toward independence or prolong dependendency.” The article asks parents to think through their philosophy of giving ahead of time. In other words, be prepared for your children’s requests. That way “decisions will reflect your values about money, raising kids and how you foster responsibility and independence.”
Rather than handing over money with every child’s request, the article asks parents to assess their children’s true needs. For example, if your child loses her job, it probably makes sense to contribute to a high-deductible health insurance policy, in case she becomes seriously injured or ill. Similarly, if your son’s car needs major repair work that he cannot afford, it probably makes sense to pay for repairs that will allow him to continue driving to and from work. Even better ask your son to contribute as much as he can and pay only the remainder. Parents shouldn’t assume they need to foot the entire bill.
According to the article, an Ameriprise Financial survey found “9 out of 10 parents give money to their grown kids for major expenses: credit-card balances, car insurance, student loans…” The article suggests that is in part due to the young adult’s desire for instant satisfaction. The refusal to save and wait for a larger goal. For instance, Ozgur Karaosmanoglu who was interviewed for the article said, “Parents scrimped for years to get a 20% down payment together. Their kids are in a hurry. They want a house by the time they are in their late twenties.”
At the root of it, I guess this is my issue with providing a down payment for my brother-in-law. He is only twenty-five. He makes over $50,000 a year and his salary is sure to increase as time progresses. Why rush to get him out of an apartment and into a home right now? So what if his rent money goes out the window? So what if home prices rise between now and then? Over the next few years, he can learn to budget and save. As time progresses, if he still does not have enough money for a down payment, then his parents can provide a match to his savings.