In Money and happinessour journalist Nicolas Bérubé offers his thoughts on enrichment every Sunday. His texts are sent in a newsletter the next day.
Many years ago, Susan Buffett, daughter of billionaire Warren Buffett, went to her father to ask him a question.
As a young mother, she wanted to renovate her kitchen to make room for her baby’s high chair. She asked her father if he would lend her $41,000 to finance the work.
“Go to the bank and do it like everyone else,” the famous investor told her.
The reflex is to think of Buffett as a cold-blooded financier. In fact, he could lay claim to the title of the world’s greatest philanthropist: he has so far given away $51 billion to charity. When he dies, Warren Buffett plans to leave his entire $150 billion fortune to charity.
He also has a habit of giving shares to his children and grandchildren at Christmas – shares that they can sell or let grow over time.
But Warren Buffett is opposed to the idea of automatically passing on his wealth to his children, or giving them other financial advantages. Hence his surprising response to his daughter that day.
I was thinking about this anecdote while reading some of your emails. More and more of you want to help your adult children with their finances.
One of the most popular ways to do this is to give or lend them money for a down payment on their first home. Last year, a survey showed that more than a third of first-time buyers in the country received financial assistance for a down payment, while a quarter received parental help with their monthly mortgage payments.
Ironically, this phenomenon could contribute to the surge in entry-level home prices, making it even more difficult to afford ownership.
Assuming (optimistically) that it does not harm the finances and retirement lifestyle of the donor parents, is such a gift desirable?
Is it a good idea to give our adult children large sums of money to give them a good start in life?
Personally, I don’t think so. It’s like making push-up and hope it makes our children healthier.
I realize this is hypocritical of me, because I have no problem with paying for post-secondary education – I invest in it. But I feel like putting someone through college is a bit like teaching them how to fish. Providing a down payment is a bit like giving them a fish.
I asked Sarah Stanley Fallaw, president of DataPoints and co-author of the best-selling book The Next Millionaire Next Door.
Mme Stanley Fallaw notes that, contrary to popular belief, the vast majority of American millionaires do not come from a family dynasty.
“The data indicates that 86% of American millionaires received no income from estates, trusts or gifts,” she says.
Mme Fallaw also warns families against what she calls “economic outpatient care,” where parents continue to finance the lifestyles of their adult children who have left the nest.
“Parents often mean well—they think, ‘Oh, I’m doing something to help my kids today.’ But they set a pattern of gift-giving that could lead their kids to a lifestyle that requires more income than they can afford. That could prevent them from being financially successful in the long run.”
That said, Sarah Stanley Fallaw believes that a one-off or occasional gift is unlikely to harm an adult child’s long-term finances, as long as the recipient has established good habits.
“A thrifty adult child will likely use the gift effectively. However, parents or family members who wish to give such a gift should be prepared to clearly explain why they are giving it now, what they expect from the recipient (if anything), and how often this type of gift will be given (if at all!).”
Vagueness and unspoken words can create a toxic environment, she fears. “Communication and planning are key. It can be helpful to encourage your adult children to create a solid financial plan on their own or with a financial planner.”
Having healthy finances and getting rich when you start working is not easy in these times?
It’s never been easy. It’s not supposed be easy.
So, sorry, big guy. I got a wonderful childhood from your grandparents, unconditional love, endless attention, paid education, and a little check on my birthday. That’s what you have a right to expect – at least until your mother and I leave this planet, hopefully in four or five decades.
To each his own push-up.