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Tuesday, January 29, 2013

Helping Adult Children Buy Houses: A Little Disclosure

There are so many issues involved, some of which were brought up in the comments to my last post. One has to think of one's own finances, especially retirement. One has to worry about creating dependency: The Millionaire Next Door authors talk about how Economic Outpatient Care weakens adult children and leads to less productivity. And: what about the other kid?

Well, who knows about retirement. Will we have enough? I have no idea. But my frugal chops are well-developed.

As for dependency: so far Frugal Son seems quite independent in his actions, especially considering how low his income is.

As for the other kid: both kids have similar profiles, for which see below.

The reason I am thinking about this is that--after almost 5 years of severe despondency and throwing my 403b statements in a box unopened, I took a peek recently and things seem OK, at least till the next bubble. When I say I, I mean we, by the way. I just do most of the planning, while Mr FS does the gardening, painting, and home and car maintenance. Since we are both frugal by nature and nurture, and because we fantasized about sending the two children to PRIVATE LIBERAL ARTS COLLEGES, we saved and saved, even as the cost of college soared at double the rate of inflation. We even started a 529 account, in which we amassed room and board expenses for four years, because we knew that if our children chose an in-state public institution, tuition would be free via the TOPS program.

As it happened, the dear children weren't as enamored of the private colleges as we were (perhaps there is a lesson there). They received some merit aid at private colleges. Each child also received room and board scholarships on top of tuition at public colleges. For that, we can all thank the test-taking gods or the fact that the children had genetic material from two families with good test takers. (Mr FS told me long ago that his older brother had perfect SATS. I have not independently verified this claim.) They each chose a public institution. Each is happy with that choice.

So, if you have been reading with any attention, you may have figured out that the 4 years of room and board fees remain untouched. Mr FS said "Why not let the kids share in the consequences of their choices?" I say, "No one would question our having spent this money on room and board or a car when they were in college, etc etc."

My musings will continue...

And, if you haven't read this, you should. It was a life changer for me.


Duchesse said...

"Will we have enough? I have no idea."

Frugal, your sentence stopped me in my tracks. There are all kinds of retirement calculators online. Have you done any analyses re your needs and how you will fund that?

The estimate of income needed after retirement differs according to various sources, but there are still guidelines. An assessment will help you determine how much help you can give your children (or any other potential recipient of gifts) now.

Mr. FS' comment about "shouldn't he share?" is kind and generous but the same logic as "Princess Dollars": "I saved $75 by buying this dress on sale so now I have $75 to spend." One should not view incurring a lesser expense as automatically having that amount to spend.

You might decide to make some sacrifices to help your children now, but most children would also wish to see their parents secure, not financially stressed. It's *all* a balancing act and made more difficult b/c none of us knows our life expectancy.

FWIW, my parents loaned us money when newlyweds toward a house, and instead of giving us cash gifts, they'd write it down.

Kare said...

Why don't you ask Mr. money Mustache. I would be interested in what he has to say.

Anonymous said...

My concern is more that the 20% down helps because saving that up keeps your expenses below your income for a long enough period of time that you can weather ups and downs after the house purchase.

I would feel more comfortable buying the house myself and renting it to the kid, if I thought I could handle the entire purchase. Or maybe giving a cash sum after they'd purchased a house that they could then use to help out with unexpected housing expenses (though there may not be much point to that).

Really I'd feel most comfortable holding on to that money until my kid had a real need (my BIL in the auto industry was unemployed for almost two years, for example), and if no need ever surfaced, then they'd get it as inheritance or it would go to their kids' education. Or, more likely, not having to pay long-term care expenses for their parents(!)

Chances are we will be paying for education but not for houses for our kids.

Duchesse said...

I'm back to say (perhaps expanding your pool of ideas) that my parents loaned us most of the money we needed for the d/p- but at at interest, though considerably less than an institution would charge. I think this was a test, to see if we could be responsible.

Or you could make part of the d/p a gift. Eager to know what you do!

I'm ignorant of much of US tax and estate law, but- if Son buys the house, he receives the tax benefits re mortgage payments and also builds his own credit rating.

Dana said...

I mean, really, if you have the money and your son needs it, then why not give it to him? (THis is assuming, of course, that such generosity does not lead to your financial ruin.)

If he sticks to a career in education in Louisiana, he will always struggle with money. Helping him to buy a house in New Orleans is an investment in his future in much the same way that paying for a private liberal arts education is an investment in his future. Whether you enter into some type of contract with him or gift the cash for the 20% down payment is something to consider to be sure.

I am new here. I am no finanical guru. I place people over money, experiences over things. I am somewhat frugal and a fantastic saver.

Duchesse said...

Frugal, dear- are you OK?

Funny about Money said...

When your adult son or daughter is responsible with money and gainfully employed, there's no good reason not to help with buying a house.

My son and I copurchased a place for him to live, which got him out of a dangerous hole. We didn't anticipate the housing crash, unfortunately; but it really hasn't had much effect on us because he has not wanted to sell the place at a loss. The house's value is now steadily climbing and at this point is probably worth close to what we owe on it. If our illustrious politicians don't toss us back into a recession at the end of this month, we expect to have positive equity in 2013.

I regard it as a business investment. But even if I didn't, I would not consider it a blot upon my or my son's escutcheon.

Helping each other is what families are supposed to do.

Tiago said...
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