In Life, Money

If you give money to your children, are you acknowledging that they’re bums?

One Toronto mortgage broker told the Star this week that a stunning 75% of the kids looking for loans have gift downpayments from their Boomer parents.

“How else do you think someone in their 30s can afford a Leslieville semi?,” he said.

“I see deals where parents are contributing $50,000, $100,000, $400,000.

The Mom of one of my best friends sold her farm for $2.5 million and gave him $450,000.

He bought a condo in Liberty Village for cash.”

(Source)

When I read that I thought: Wow, those parents are really generous giving their children that kind of cash.

It’s nice that they give them up to the 20% required so that they don’t have to pay the mortgage insurance or to help them “break into the housing market”, but… is it really as helpful as you think it is?

1. THEY COULDN’T SAVE THE DOWN PAYMENT ON THEIR OWN

.. so what makes you think they’ll be able to continue paying the mortgage easily if they’re used to having money handed to them?

I mean if you don’t go through the process of clearing your student loans first and/or or saving up that hefty 20% down payment, you’ll never really feel the true value of what it means to spend $800,000 on a home, taking out a $640,000 mortgage.


Travel-Photograph-NYC-New-York-City-USA-Homes-Apartments-Houses

What will they do when the interest rates rise? (And believe me, they will!)

What will they do if they lose their jobs?

Saving a down payment for a house is not just the down payment itself, it’s also the process of saving that money that matters because it shows them how realistic their budget is for the kind of money they want to splash out on a house.

2. ARE THEIR PARENTS JUST ENABLING THEM?

With their parents generously topping up their down payments to 20%, or giving them a “boost” of $100,000 here and there, are they just enabling them?

For sure, they’re enabling the housing market to reach sky high, nose bleed prices that for me, are simply ridiculous (comparing this city of Toronto to Chicago a city of a similar size, it is unbelievable what people will pay for a home here).

Are parents just feeding fish to their kids instead of teaching them how to catch it on their own?

CASE IN POINT: THE ONLY ONE WHO GETS FINANCIAL HELP? THE BUM IN THE FAMILY

I think there’s a little something to that, because looking at my own family, the only one who has ever gotten a lot of help by way of debt repayment, or has been offered gross sums of money to “invest in a place of his own”, is my bum of a brother.

Yes, I said it, my bum of a brother.

He takes after my father in the sense that he feels entitled to everyone else’s money, and doesn’t stop effin’ whining about it every time we meet, along with his standard: “I hate my job because I don’t make enough money.” response when you ask him how things are going.

So put up [with it] or shut up“, I think I snarled at him in frustration after the umpteenth time.

He never said it to me again.

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An example would be with the way he treats everyone else’s home like a takeaway restaurant.

He will actually come to your house with the intention of raiding your fridge or freezer to eat for the week, with no shame whatsoever, or he will actually straight out, ask you to save all the leftovers of the meal for him to take home to eat, even though you were planning on eating the food that you cooked.

Yet he is the only one my mother has ever offered to help out.

In fact, she lent him $10,000 during the time he was paying off his loans (sitting at home, playing video games, working some dead-end temp job), and he conveniently forgot that he owed her the money until she blurted it out in the heat of the moment when we were having an argument.

Did anyone else in the family have student loans? Yes. We ALL got student loans because my parents gambled their lottery windfall away.

Did any of us get student loan help aside from The Bum? No.

Just the other day, I got wind of her offering to re-mortgage her NEWLY PAID OFF HOME to help “give him a start in life”.

You have no idea how fast I jumped on that idea and squashed it, because the last thing I want, is my mother to give away money to someone who has no track record of ever paying back anything on time in his life.

Did any of us get offers to “help out” with down payments on houses or condos aside from The Bum? No.

So it made me wonder what kind of grain of truth is in parents giving money to their children to “help them out”, which in the end, just creates a dependence on the parents to be strengthened, and the kids don’t see the point in working any harder or learning how to save their money.

Why would they?

If you were gifted $500,000 from your parents, even if you earned $100,000 at your job, you’d feel pretty good about being able to basically spend your entire paycheque because…. hell, you have $500,000!

At the most, you might save $10,000 on your own, but you wouldn’t really see the need to. Would you?

OTHER OPINIONS

One last opinion on the subject is when I heard a friend say:

My mother is extremely proud that she doesn’t have to give us any money. She told us that we are all smart enough and independent enough to find a way to get what we want, and she’s thrilled she raised such great kids.

..so they don’t get any help at all, and aren’t in the slightest bit resentful that she doesn’t give them anything.

Of course, when she passes they might get $10,000 each or so, but they aren’t asking for the money now because they just don’t need it. They’d rather that she use the money for herself.

The only time I can really see it NOT affecting children is if they’ve hit their 40s and they’re already set in their money habits. If they’re already successful, independent, saving enough for their own retirement, and then you gift the money to them, they are more likely to bank it than to spend it.

However I have casually observed that if parents give money to their children before these money habits are formed (before the age of 40), their children tend to veer towards developing lazy money habits.

WHAT DO YOU THINK?

IS THERE A GRAIN OF TRUTH IN GIFTS OF MONEY BEING JUST AN ACKNOWLEDGEMENT THAT THEY’RE BUMS?

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Sherry of Save. Spend. Splurge.

I got out of $60,000 of debt in 18 months using TheBudgetingTool.com. Since then, I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K (savings rate = 85%). I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I also post daily on Instagram @saverspender.

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14 Comments

  1. Izabela Michalska

    When I (and my husband) decided to buy a flat – both my and his parents offered us a loan, so we didn’t have to take a big mortgage. Now my sister decided to buy a flat and my parents offers her a loan, too. I think it’s a reasonable solution. I don’t want to get any money from them since I’m adult. In my country it’s normal, that parents pay for studies – in fact I know only one person who paid for his own studies. But during the studies I was taking language courses (I was learning english) and I paid for myself (I was working during studies – which is not very popular in Poland). I also paid for my post-graduate studies. Once my mother told me, that she is thinking about encouraging my sister to learn foreign language and that she is going to give her money. I asked her, if she wants to give me also the money for the course I attended earlier. She agreed, that it would be fair, but then she wasn’t so eager to say goodbye to those money.
    I didn’t say that because I don’t love my sister, but because she enjoys getting money for nothing and I can see, that her life choices and often very stupid, because they can be. She knows – whatever she does, my parents will give her support, they will give her money. She rented a flat in a big city she couldn’t afford – my mother paid for food, clothes etc. When she started to earn better money – she immediately bought an expensive car. Now she wants to buy a flat (for me this is the first wise decision), but because of the car she doesn’t have their own money (she would have had 15% of the value of a flat).
    I know, that comparing to some other parents she is not pampered so much, but I want her to be more reasonable. When she didn’t have a job or very badly paid job I also offered her money – but not for free, but asked her to do the housework for money, for example: ironing, cleaning the windows. I don’t wanted her to think, that I’m a person to give her money. I firmly believe that just giving money are the message for the person: “you can’t earn money, don’t even try” or “you don’t have to be an adult person, you are always a child”.

    Reply
  2. NZ Muse

    Not bums necessarily, but acknowledging the reality we live in. All of my peers have had family help in some way (if not cash towards down payment or parents guaranteeing their downpayment, then living at home rent free for years) and every mortgage broker will tell you that’s how most young Aucklanders are managing these days.
    “Is family help an option” was the second question every mortgage broker asked me, and then I would feel embarrassed when I said no (although as you know that eventually changed). As you know rental conditions are awful here and home ownership matters in a number of ways. I still feel lame about having accepted family money, but I am paying it back, and I was independent from age 17 (as opposed to say my brother, who still lives at home rent free and has just graduated).

    Reply
  3. Kathy

    For the most part I would agree with everything you said. I have lived through my mom paying off my brother’s house, giving him a car, paying off his truck and letting him live rent free in her home after he divorced (she had re-married after my dad’s death and was not living there).She also would make deposits into his bank account when he no longer worked due to severe alcoholism and took him food on a weekly basis. My stepfather built his daughter a new house, gave her a rental property, and funded her kids’ college education when they were born. In fairness, I have to say that my mom and dad did help pay for my college education but that was 46 years ago so much less expensive back then. Anyway, of the two kids my mom had and the one my stepdad had, guess who the one was who got nothing. I admit to feeling somewhat resentful, but I am also happy that my husband and I were self-sufficient and everything we have we got on our own.

    Reply
    1. sherry@savespendsplurge.com

      It’s probably better that you worked for it all on your own, because it means more.

      Reply
  4. Xin

    There’s a lot of truth to what you’re saying, especially to your friend’s point that parents should be proud of raising adult children who are independent and not in need of (or willing to) accept monetary support. I’m even from a cultural background (Taiwanese and Chinese) where its fairly accepted and even socially expected that parents provide a fair bit of support to their children, especially through education expenses, often for both undergraduate and graduate school education (or at least many parents feel that its their obligation to do so), and of course, the kids should also eventually be ready to help out their parents later on in life. Even when parents are happy to do that, the ideal is that the child should hopefully get self-sufficient fairly quickly, the sooner the better!

    I actually have a few college classmates with NYC apartments purchased by their parents, which I’m super envious of, to tell the truth.. (The classmates in question are actually very down to earth and non-extravagant or spoiled people: they tend to spend less on clothing and the like than I do.) In the really crazy housing markets, it really would be touch to save enough for a down payment, even with a lot of frugality. Very few NYC biglaw attorneys with any real amount of student loans would be able to do it alone without some truly extreme cuts (living with their parents rent free for a while… even living in the cheapest possible apartment share very far from where our offices are generally located in Manhattan would possibly not cut it).

    Reply
    1. sherry@savespendsplurge.com

      I always like to say that it builds character.

      Reply
  5. ArianaAuburn

    Yes and yes. I’d be ashamed if my parents did that to me. I don’t want their money. I only want them to have money for their needs since they are getting older and less mobile. I constantly ask my parents if they are still helping my bum brother out. I remind them that my brother is too damn old for handouts. But it might have to do something with that guilt that parents feel about not being able to help their kids out.

    Reply
    1. sherry@savespendsplurge.com

      All parents want the best for their children. I definitely want the best for Baby Bun.

      Reply
  6. Taylor Lee @ Yuppie Millennial

    I’ve definitely heard of parents offering to co-invest in their children’s houses and whatnot (and these being fairly fiscally responsible children). I think, in certain cities at least, it’s an acknowledgment that getting that foothold on homeownership is very difficult at the time frame people used to do it. And that gathering together enough for a 20% downpayment may always be just out of reach for someone if housing prices continue to rise 5% each year.

    For for my brother we’ve all chipped in to make sure he graduates college debt free whereas I got nada from my folks (which was fine because I was on full grant aid for college). I don’t think that’s an admission that he’s a bum (he’s actually very responsible and I’m proud of what he’s accomplished so far), just that as a group I think my family really believes there’s a lot of value and flexibility that will yield major dividends in his life if he’s not constrained by debt when graduating.

    Reply
    1. sherry@savespendsplurge.com

      Wow! How generous of you to help.

      Reply
  7. raluca

    I think that maybe this is not the same over all cultures. In some counties/cultures, it’s expected that the parents will give their kids a boost when they are just starting, like paying for their education, their weddings or their first homes. In that case, the kids are also expected to help their parents when they get old. The family ties are so much stronger and the money is treated more as “clan money” rather than pertaining to the person who earned it. And this seems to have worked very well for some families like the Rothschilds, or even the British aristocracy.

    In societies that are more individualistic, yes, I agree, the people who get more money from their parents are the people who end up more dependent on money. Because let’s face it, if you get the money for free, where exactly is the incentive to go out and get your own, especially if you are not overburdened with ideas such as responsability and gratefulness.

    Reply
    1. sherry@savespendsplurge.com

      I completely agree with the community versus individual mindset. It was quite clear in the way people shop in this excellent book and it applies everywhere:

      Reply

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