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.
Honestly, I don’t see that much difference between your parents paying for your education and his parents helping him buy a home. Because he is a few years older? I don’t think that makes it that much different. I doubt that you feel that you didn’t get to fully experience the gratification of putting yourself through college, as you worked hard in college and it was a lot of effort. For him, he will have the continuing mortgage payments and home upkeep to make it feel like his own. The only thing that would worry me about his situation, is that they may play too large a part in which home is chosen.
@anonymous – It’s not a issue of age. It’s an issue of reliance versus independence. Paying for a college education is a means to a higher end. According to a 2002 study, high school graduates earn an average of $1.2 million compared to college graduates who earn an average of $2.1 million. In most instances a college education will promote independence and self-reliance, in part based on a larger salary, and the ability to provide for oneself. A down payment on a house, (a house which someone cannot afford without assistance), may further reliance and dependency.
Also in this particular case my brother-in-law’s college education was originally funded by his parents. He squandered their gift by failing out of school on multiple occasions. Although my parent’s paid for my college education I worked all four years at internships and part-time jobs to help pay for books and other activities. It was those low-paying jobs that helped me see just how important a degree would become.
Like you, the issue recalled the comments in Millionaire Next Door which you refer to.
I’ve known a few people (mostly friends of my parents) who have provided substantial economic support to adult children beyond funding educational needs. Some have continued to work hard at their careers. Some have not.
At a more personal level, my parents funded my younger brother’s wedding. He got married relatively young when he had not accumulated much money. My brother has gone on to develop a very solid career and keeps his finances firmly under control.
A few years later when I got married, my parents insisted on contributing the same amount of money (with a slight uplift for inflation) to the cost of my wedding. My wife and I tried to say “no thanks” but eventually caved when my parents said they were going to treat all their children exactly the same and would be very upset if we prevented them from doing so. It was easier to take the money than risk a family arguement.
The point being that while I instinctively dislike the idea of adult children receiving economic support from their parents for the reasons which Stanley/Danko give, it does not always turn out badly. A lot depends on the character of the recipient.
I’m all for having parents contribute to their children but I think it should be done in a different way. Paying 100% for a down payment isn’t teaching you anything but if they where to say that they’ll pay half of what you contribute up to XXX amount, they’re teaching you something. The harder you work and save, the more money you’ll have for the down payment. My Parents contributed 5% of my down payment and because of it, I was able to save $60 000 in 26 months.
I tend to agree with the above anonymous. In the end it’s still an amount that was gifted to you in the hopes that it would help you in the future. As someone who didn’t receive any type of help for anything it’s difficult for me to accept that someone who did learned the exact same lessons of self-reliance.
It’s great that you worked part-time to pay for books though. At least you didn’t coast through it like some others.
And in the end you did realize how valuable a degree was so it wasn’t a wash.
Although the point anon was trying to make was that in the end, it’s still money your parents gifted you even if it was for different reasons or for different amounts.
For me, I’m probably in the same boat as is anon – I moved out, paid for tuition and living all on my own, and am finally close to paying it off now.. then I have to save for a down payment, but you know what, I feel more of an accomplishment because I’m proud to say I did that..
But I can’t say how I’d feel in your position because my parents didn’t pay for my education, but they’ll sure pay for it in the future in terms of them trying to weasel retirement money out of me because they think I owe them a living. 🙁
I see a clear difference between financial assistance for college and financial assistance for a down payment. It’s true that your parents are providing assistance either way, but with one activity you still have to prove yourself, with the other you don’t.
If your parents provide money for college you still have to study hard and perform well to graduate.
Similarly, it takes a lot of hard work, effort, and financial restrain to save money for a down payment.
But where is the hard work involved in a down payment provided by your parents?
Fundamentally, I just don’t think the two activities can be compared.
I disagree. A downpayment is very different than bailing someone out of credit card debt, bills, etc. I don’t see it as creating a reliance on others for money or encouraging wasteful behavior with money. My parents gave me 30,000 towards a downpayment on my 1st home when I was 27. At the time, it was made very clear that this was my inheritance, period. I used the money to purchase a home in a market where I wouldn’t have stood a chance without it. I am now 30, own two homes, and haven’t relied on my parents for financial assistance with anything. I have also doubled my salary since then, and feel very fortunate that I was able to buy a place at a time when my income was much less. I think there is a very clear difference between a down payment and financial assistance with debts, bills, expenses, etc. I would rather help my kid buy a home than pay off their student loans or credit card bills. I see that as creating a dependence on ‘mom and dad’, whereas a downpayment does not.
@anonymous — That’s an interesting point. The first comparison was between college expenses and a down payment. Your comparison is between a down payment and credit card debt. In my mind all three are very different.
Regardless though you are correct. The roles and responsibilities sit on the shoulders of those who receive the money. Some, like yourself, may be responsible with the money you’re given, others may not.
In my case I can only hope you are correct and wait to see what happens next.
I was going to say the same thing as Anonymous. That I don't see much difference between your parents footing the bill for your education and his parents giving him the money for a down payment. I believe I remember reading in an older post that he's matured recently, has held down a good job and is attempting college again.
Personally, I struggled to pay for college on my own. I've made some money mistakes, but I'm grateful that my parents allowed me (it was my choice) the opportunity to work through college. I've learned to appreciate the value of a dollar much more because of it. My parents couldn't have paid for my education without struggling, and because it was my choice, I didn't want that. I look at people who had their educations handed to them as less appreciative of money or of their educations as a result. I don't think that's the case with you specifically, but for someone whose parents handed her a lot of money for college, you're being awfully judgmental about your brother in law.
As to the last sentence in your post, I agree that money equals control in a lot of instances. That's why I chose to pay for college on my own. I didn't want my parents controlling any aspect of my life. The self-reliance I've learned from doing it on my own far outweighs the cost I've incurred in student loans and countless hours at work.
Financial assistance for college versus a down payment is akin to the adage that goes, "Give a man a fish and he'll eat for a day but teach a man to fish and he can eat for a lifetime". The college degree gives a person the chance to earn more in the future while the down payment, especially in this economy, might not be worth so much in the future.
My parents did not pay for my education nor did they give me any money for my wedding or any down payments. I started out poor despite the fact that my parents were not. Then again they did not have bank accounts full of money either. They managed to live well on a middle class income but there wasn't much left over to give me.
I don't think it would have done me any disservice to give me a leg up in starting out in life. I was not a spoiled kid and I certainly would not have become spoiled if they had given me a down payment. In fact it would have given me just the boost I needed to get into what became a very profitable real estate market for a long time. I was always jealous of the people who were able to cash in on that. At that time that little down payment had the potential to earn you quite a bit of cash in a short time. Buying real estate could make you a fortune. I never got to benefit from that because despite a college degree without that leg up I never had the money to invest in real estate until my husband's father died and left him 50,000. Of course as soon as we bought a house the recession hit, the real estate market fell apart and now we are struggling to keep our house. Plus now my father is a widower and I own his apartment but it's not worth much anymore and needs renovation. Nothing is selling right now. So I see a lot of spoiled privileged kids getting more privileged while I never had it so lucky. The people who would deserve it never get it. The ones who think they are entitled get these gifts and become even more spoiled as a result. Just my opinion.