Image by Quarantine Vectors by Vecteezy

• Share

PRINT

There is definitely a sweet spot when it comes to family wealth. Not enough money comes with problems. Too much money comes with different problems. The numbers are different for everyone.

One thing I’ve seen among the wealthier families we work with is a hesitation to give money to their kids for fear they will run into the problems that come with too much.

I often tell these folks that money can be a rope, or it can be quicksand. It can help your kids up, or it can totally sink them. This depends on the amount, the method and, most important, the kid.

Below are three ways to help your adult child get ahead without having to fear it will sink them. The common thread here is that each of these categories of expense lasts for a finite period.

In working with retirees, I am much less worried about one-time expenses than I am about smaller, ongoing debits. You can plan for something that has an end date.

As with all gifts, use the airline oxygen mask example: Make sure you put on your mask first to ensure you have enough money for yourself before you pass it down.

Education

When I was 22, I was sitting in an ING office in Philadelphia. One of the many people I shared my “office” with asked our boss what stock he thought they should buy.

The boss said, “If you have enough money to buy stocks, invest in yourself instead and go get your CFP.”

The CFP (Certified Financial Planner™) certification is one of the less expensive professional development programs, but when you consider the cost of going back to school, taking a review course and paying for the exam, you’re probably spending about $10,000. The return on investment on this will be significantly more than what you can earn in the market.

This is the example I use because it’s the industry I know best, but these programs exist for most professions and can be a great way to help your kids get ahead.

Your Millennial or Gen X children may be beyond this point, but they still may be struggling to save for their own kid’s college. Even a few hundred bucks a month into a 529 plan for your grandkids is a huge help.

Down payment on a home

Home ownership in major metro markets has been put out of reach of many Millennials and most Gen Zers. Demographic trends, shortage of supply and high interest rates are all working against them.

Much of this recent pain is a result of Covid. However, the shortage goes back to the global financial crisis in 2008.

The silver lining is that, with the inflation we have seen over the past few years, we have also seen wages grow significantly. Many of your kids can afford the monthly mortgage payment, just as they do their rent.

The problem is, the median home price in this area is about $600,000. A 20% down payment, plus $20,000 for closing costs, means your kids would have to scrape together $140,000 to get a home with a mortgage.

That’s tough to picture for someone in their 20s or early 30s. Helping your kids get to 20%, so they can afford the payment and aren’t stuck with private mortgage insurance, will help them instantly build equity.

Child care

If you study trends of income vs. expenses over a typical lifespan (as I realize almost no one does), you’ll find things are tightest, and most likely to cross into the red, in the early years of having kids.

You have all the one-time expenses: cribs, fancy strollers, car seats, etc. But the big one, the one that everyone complains about, is daycare.

We pay about $16,000 per year for our 2-year-old’s preschool. Fortunately, my wife’s schedule can support this, and we have the means to pay for it, but this is a real struggle for a lot of people I talk to.

Once again, the benefit to helping during this period is that it is finite. Once kindergarten rolls around, there is a free option.

A final note on contributing to your kids’ retirement

You may have noticed that I didn’t recommend putting money into a Roth IRA or other investment vehicle for your kids. I thought about it, and I don’t think it’s a mistake to do this.

But then I thought about my own situation: I didn’t have the wiggle room to save in my early 20s.

As a financial planner, I have seen a million versions of those charts showing how much you need to save per month, based on your starting age, to hit $1 million. The amount you have to save gets exponentially larger the later you start.

This forced me to create the capacity to save. It forced me to limit spending that I may not have limited if my parents were saving for me, for retirement.

I think the tradeoff of missing a few years of savings was worth a lifetime of better habits.

Evan T. Beach is a Certified Financial Planner™ professional and member of the Financial Planning Association.

© 2024 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.