How to give your adult (grand)kids money without screwing them up
This is a common problem for those of you who have achieved a certain level of financial success. It’s natural to want to give your kids a better life than you had. But what does “better” mean to you? Does it mean easier? More fulfilling? Wealthier? How do you set your kids up for a great life?
There are a couple underlying emotions to this puzzle. One, is that you want to help your kids. It’s so much easier to make money in your 50’s than in your 20’s, isn’t it? Whereas they are probably able to earn money at the rate of about $15 per hour, you and your spouse might earn the equivalent of $50-$100/hr. Besides that, you might have investments and business income that dwarf their annual wages, yet require minimal additional effort from you. Wouldn’t it feel good to just give them a little bit of money while they’re starting out to make their lives easier? You worked so hard at their age, after all, that you missed out on some great experiences you wish you could have had.
That, as I understand it, is one possible parental impulse.
But there is another train of thought that may also, simultaneously, be going through your head. It says: the reason you are where you are today, is because your early life was hard and you overcame it. It made you stronger. You may not have appreciated it in the moment, but those hard times gave you the attitudes and skills that got you to where you are today. Consequently, you may be worried about robbing your children of those opportunities for personal development and the satisfaction accompanying those experiences. Your role as a parent, after all, is to raise your children into strong, healthy, independent adults.
So, you don’t want your kids to suffer, yet you also recognize that you owe much of your own success, satisfaction, and resilience to your experiences with suffering. Pain produces strength, which provides shelter from pain. The lack of strength, meanwhile, invites persistent suffering. Remaining weak, getting strung along by a series of temporary rescues, never being allowed to hit rock bottom (which is normally when you would be forced to confront your weaknesses), does not a good life make. This is what many spiritual teachings (Christianity, Buddhism) call the Paradox of Suffering. Quite the conundrum. You love your kids, and do not want them to suffer needlessly. Yet that lack of suffering today almost certainly leads to suffering later on.
What I have said in 450 words, Warren Buffett puts more succinctly, “I want my kids to have enough to do anything, yet not so much that they can do nothing.”
With that in mind, here’s my idea, based loosely on the Earned Income Tax Credit which has generally produced good results for our country’s efforts to solve poverty. Rather than give your child a fixed dollar amount, like an allowance or stipend, or swoop in from time to time to cover larger incidental expenses (which might actually be worse than a hard monthly or annual limit), offer some kind of matching program that lines up with the behavior you want to encourage.
For example, you could offer to gift your kid $0.25 for every dollar they earn. Thus, you let them enjoy more of life, while still requiring them to participate in “the real world.” This has a couple exciting benefits. If your kid is an aspiring artist (or aspiring anything), they’ll need time and supplies to pursue their passion. For most, this means getting a job, usually a low-paying, part-time gig. However, instead of working 30 hours a week to support themselves, with your help they might need to work only 25, thereby freeing up an extra 5 hours for their art. Or maybe they work longer, but use the extra wages to get lessons and better materials, or to attend conferences in their specialty. The choice is theirs. The key, though, is that you are giving them extra flexibility (possibly the flexibility you wish you’d had) while still maintaining accountability for their own well-being.
Another option is to fund some percentage of your kids’ expenses associated with their dream. Anything less than 90% still requires some buy-in from them, yet opens many doors that would be a lot harder to access otherwise. What they do after that is up to them.
Yet another variation is to set a fixed limit on the amount of money available through this program. Maybe you decide there’s only $100,000 in the pot, and after that you expect your kid to have figured out a way to sustain themselves. The key is a combination of flexibility and urgency. You may not want them indefinitely netting $55,000 from a part-time work job. After all, from their perspective, there’s a point where you have enough money that it’s not worth the extra time you’ll need to spend at work.
For any scenario you choose (and by all means feel free to tinker with these numbers), the goal is the same: help your child develop a career and a life that offers them a lifetime of fulfillment, by granting them a little extra flexibility in their youth. The factors supporting that outcome are hard work, the ability to take chances, and a little extra freedom of time.
Let me know what you think, whether you’ve got questions or want to argue a point with me I’d love to talk with you and learn more.