My in-laws are currently considering providing the down payment on a house for my brother-in-law. My brother-in-law is twenty-five, makes roughly $50,000 a year in an IT related position and currently rents an apartment for approximately $900 a month, including utilities. He failed out of college during his younger years and is now pursuing an undergrad degree at night. He takes roughly one to two courses per semester, paying approximately $690 for each three credit course.
His parents have done very well for themselves by saving and purchasing real estate throughout their lifetimes. They are in their early sixties and have just retired after 30+ years of work. With housing prices falling and interest rates at all time lows they believe the current market is just the right time for their son to buy a house. They are planning to provide a sizable down payment, not just the typical 10 – 20%. The idea is that they will pay down the majority of the mortgage so that their son’s mortgage payment will be close to his current rent.
As soon as I heard the news I couldn’t help but think of the Millionaire Next Door. The author of that book is very clear about the impacts of financial assistance on adult children. He notes, that “the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.” It seems that higher levels of consumption often result from parent’s who provide generous gifts of financial assistance. In other words, fewer millionaires are spawned by millionaires who share their wealth.
In an interesting article, Wise Bread blogger, Julie Rains discusses a parent’s decision to provide a down payment for their daughter’s house. She writes, “I wish I could say that the gift had thwarted [her] self-reliance but I don’t think it did…. Did it rob her of the sense of self satisfaction of succeeding on her own? Maybe it did. But more importantly, she may not have learned how to live with less comfort and more creativity.” This sums up my thoughts precisely.
I can clearly see both sides of this coin. On one hand you have successful parents who have worked hard and managed their money well. Rather than waiting to pass an inheritance on to their child, they figure they should provide him with financial assistance right now. On the other hand, how do you learn to value money if you are constantly being handed more of it? At the root of it lies this question. Can you learn to value money if you have never had to struggle to attain it? Does a man like Bill Gates or Warren Buffet respect money more than the grandson of the Johnson & Johnson legacy? Isn’t this the reason Warren Buffet is planning on donating the majority of his money?
I try to put myself in my brother-in-law’s shoes and wonder how I would feel if my parents offered me a large chunk of money. Thanks to an amazing education, funded by my parents, and a good job straight out of college I didn’t struggle for long after graduation, but even that short struggle dramatically altered my thoughts and feelings about money and saving.
I purchased our first house, with my husband, five days after my twenty-fourth birthday. I remember how proud I felt when the broker told me I was the youngest woman who had ever signed a mortgage at his firm. At the root of it I am proud of our accomplishments and our ability to manage our finances. If you took me back in time and offered me a down payment I have to admit that I might have taken it, but looking back today I would not feel as accomplished or proud as a result of it. But everyone has their own path in life and maybe my brother-in-law doesn’t need to feel proud of this particular accomplishment.
Although we were not presented with this offer when we purchased our first home, we were offered money from my in-laws when we purchased our second. At the time I told my husband we would buy it on our own or we wouldn’t buy it. You see part of my resistance to accepting money is the realization that money is rarely free. Even free money will have strings attached to it.