Finance For Kids: Should You Give Money To Your Adult Children?

By P V Subramanyam

After Children’s Day is a good time for parents and children to take stock, financially speaking. Most parents like to think they’re helping their children by helping them financially, especially if they’re doing well, and in many cases, even if they are not doing so well themselves.

Consider the case of Amitabh Bachan and the face that his son, Abhishek, and daughter-in-law- Aishwarya could very well afford a bungalow in Juhu on their own. However even assuming that they could not, there was a good chance that their “successful father” would have gifted it to them.

Most parents love their children and want the best for them. And they want their children to have an easier run through life than they may have had. Consequently they tend to spoil their kids a bit, with the results that the kids almost always get more material benefits than their parents had at the same age.

Indian parents, among others, love to talk about how difficult life was for them. If your parents grew up in India during the 1960s and 1970s you’d hear horror stories of queues for ration, milk and kerosene. Despite that, or perhaps because of it, they will continue to spoil their kids.

One 23-year-old girl told me, “I just want a small wedding, but if my parents want a ‘tamasha’ of a wedding, let them pay for it.” She’s right! If you’re paying a fortune for your daughter’s wedding, it is not because she wants a lavish wedding, but because you feel the need to show off to your friends, relatives and colleagues.

Enabling children financially is not always a good idea. Children who receive significant financial assistance from parents tend to under-perform, in the income and the asset accumulation stakes, in their own personal lives.

Its possible that the knowledge and expectation of regular financial assistance takes away the imperative of working hard for oneself. The child may not be hungry for success, and may not feel the need to work hard and plan for their own financial successes.

I know of many successful lawyers and doctors whose progeny is no patch on their parents. I also know of a 40-year-old who still talks of his father as a great success and now has a major complex about it.

Of course, one exception is education. Financial assistance to allow children to maximize their educational achievement almost always makes sense. Education is always an excellent investment. And the return on investment is almost infinite. For instance, I earn more every month than my father spent on my education throughout my career.

Spending money on your child's education is an excellent investment

Other exceptions include medical help, a short term loan to bail them out of a difficult situation or a start up with a small capital requirement. However it’s better to structure all these as loans or gifts so they are properly documented and transparent to all your other kids.

On the whole, I believe that financial assistance to children is not a good idea. A child buying his or her own home incites strong emotions for parents. Parents can be anxious that the child chooses well and buys a good home in a good location.

If ever they offer financial assistance, this is when parents feel compelled to provide it – even if they are not doing that well financially. I am still not in support of this action. Strangely, in India, the idea of sons being helped out by their parents is accepted as normal, but a father-in-law helping a son-in-law is seen as emasculating!

I know of a doctor who wanted to insure his daughter, but I convinced him to insure his son-in-law instead. After all, it was his daughter who needed protection. It was a difficult sale, I can assure you!

Another doctor’s wife was delighted to tell me about her daughter’s recent wedding to another upcoming dentist. The daughter was looking after the parent’s practice and the son-in-law was a dentist practicing in the same area.

The parents were looking for a suitable house for the young couple, and the budget was far, far beyond the young couple’s budget, for sure. The elder couple wanted to pay about 70 per cent of the cost!

To sum I recommend that parents should not give kids financial support for anything other than education. If a guy buys a car or a house, that is much bigger than what he can afford, his friends will keep riling him about that and he will be unable to seem independent.

Taking money from a parent is bad for a man – taking from his wife’s parents is worse. His friends will finish him. It reminds me of a man who took his pen and broke a butterfly’s cocoon – so that the butterfly could come out.

The butterfly did come out, but it could not fly! Pushing against the cocoon is completely essential for the butterfly to strengthen its wings. Parents should not break cocoons for their kids… it is bad in the long run.

© P V Subramanyam is a chartered accountant, trainer in the financial service sector and the author of ‘Retire Rich: Invest Rs. 40 A Day’. He writes for websites like moneycontrol.com, myiris.com and writes a blog at SubraMoney. He has trained in many mutual funds, insurance companies, banks,  and other companies and conducts financial planning workshops for companies  helping employees save and invest better, equipping smart people with the tools to get richer.

This article may be reprinted along with the complete author bio and a live link to http://www.lovingyourchild.com

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