"Bank of Mom & Dad"--interesting new piece in NYT on parental financial help

What about the reverse? I know a couple of my friends (Asian background) that send their parents $200/month or so..

Sounds a lot like the parents are self-justifying "economic outpatient care".

tashayar, thanks for providing an interesting POV rooted in actual experience.


kamalktk, no doubt you are right about many parents simply rationalizing "economic outpatient care". I see this all the time, and TMND powerfully makes this case as well (superb book, btw.)


slimcustomer reasonably asked for a clarification of what "circumstances" might qualify giving such aid to kids as "prudent." I haven't thought much about this, but here are a couple of reactions:

-When help can plausibly open up future opportunities for career & financial success that wouldn't be available otherwise. This is vague and abstract, but deliberately so because specific circumstances are often complicated. I'm thinking things like education, retraining, helping to fund a Roth IRA, etc. Closely related to this concern is:

-When help can be structured so that it doesn't promote what economists and philosophers call "perverse incentives." I think one problem with much parental aid--that leads to its functioning as "economic outpatient care"--is that the implied message is, "not only will we (parents) bail you out, but the worse/less you do, the more we'll help." Of course, parents don't think about it in this way, but that's often the result because they can't stand to see their kids suffer (even when it's partly or entirely their kids' own fault.)

The VERY tough question, is, how does one do this?

One answer can be to not effectively tie one's help to a sliding "means test"--meaning that money parents give essentially offsets money they don't earn or save. Perhaps better to offer $x per month to help out, and clearly indicate that it will neither go up nor down.

Another might be a savings matching fund. For every dollar kids manage to save for specific ends (retirement, down payment for a house, private schooling, or even nice a wedding), parents will match it. Here, the incentives are more in favor of prudence and frugality, not consumption and lavish lifestyles.

More generally, I think it's important also to keep such aid as clearly proscribed and defined as possible, and NOT being subject to kids doing what Mom or Dad approves of as much as possible too (beyond the explicit conditions of help laid out in scenarios like the "matching fund" example.) That reduces issues of manipulation, control, resentment, etc. that can accompany such help.

Anyway, these are just thoughts off the top of my head...what do the rest of you think?

DaveHanson said: slimcustomer reasonably asked for a clarification of what "circumstances" might qualify giving such aid to kids as "prudent." I haven't thought much about this, but here are a couple of reactions:


... a savings matching fund. For every dollar kids manage to save for specific ends (retirement, down payment for a house, private schooling, or even nice a wedding), parents will match it. Here, the incentives are more in favor of prudence and frugality, not consumption and lavish lifestyles.

I love matching schemes where you get money for saving. Seems to me like a great incentive for borrowing the maximum amount that will be matched and paying off the loan as soon as you can get your hands on the matching funds. My parents knowing me, never offered such a generous plan

My general sentiment is that the Bank of Me and My Better Half help out those in our family incapable of helping themselves. Minor children and impoverished elderly relatives count, capable but motivationaly challenged adult relatives don't. Hypocritically, I make two exceptions. One is that I will quietly fund my children's Roth IRA's from high school through college to the extent they qualify. I have no intention of mentioning it to them really and I'm almost just doing it because I'm impressed by the wealth creation ability of such an investment vehicle over 40-50 years. Second is the carrot of graduate school. We expect our children to foot the bill for college with the knowledge that if they are successful students and wish to go on to graduate school, we will help them pay for that. I'm afraid that grandparents and/or greatgrandparents, knowing of our "Draconian plans", will try to undermine this in someway by making a gift to them for their undergraduate education. Not much that we can do about that I suppose.

Your exceptions suggest to me that we don't disagree in principle, SC...

slimcustomer said: DaveHanson said: ... a savings matching fund. For every dollar kids manage to save for specific ends (retirement, down payment for a house, private schooling, or even nice a wedding), parents will match it. Here, the incentives are more in favor of prudence and frugality, not consumption and lavish lifestyles.

I love matching schemes where you get money for saving. Seems to me like a great incentive for borrowing the maximum amount that will be matched and paying off the loan as soon as you can get your hands on the matching funds.And if the kids in question are interested in such circumvention, and/or the matching scheme is easily circumvented, than I agree that such a system is a bad idea. But if (for example) I match for a down payment on a house that my working class kids otherwise don't have a realistic shot at, AND I don't pay the kids, only my half of the down payment directly, then perhaps such end runs could be avoided. (In fact, if I thought my kids were likely to try such cute tricks, then the "tough love" approach would be the better call.)

My general sentiment is that the Bank of Me and My Better Half help out those in our family incapable of helping themselves. Minor children and impoverished elderly relatives count, capable but motivationaly challenged adult relatives don't.Hmm...to play devil's advocate...barring unforeseeable circumstances, isn't the elderly relative responsible for their own poverty? And won't the kids be able to help themselves eventually? Perhaps a "loan", not a "grant" from bank of Mom and Dad?

Not a criticism at all, but I'm not sure I see why you'd help the kids pay for grad school, but not college. I'd be more inclined to do the reverse. That gives a greater incentive to do well in college (getting better fellowships and what not), and also lets kids focus more on studies than $6/hour work study jobs.


In any case, generally speaking, it sounds like the real issue for you--as for me--is making sure the incentives aren't operating to undermine initiative and hard work, but rather to encourage it. Are we on the same page as far as that goes?

my plan is to make my kid take out loans and tell him that he better do well in school or I won't pay the loans off.

DaveHanson said: Hmm...to play devil's advocate...barring unforeseeable circumstances, isn't the elderly relative responsible for their own poverty?

Certainly, especially when advice and planning from a certain grandson could have avoided their current impoverished situation. However when my 95 year old grandma is flat broke and would be deaf without a hearing aid, she's getting one as an early birthday gift(Oh yeah, that brings up exception number three. When our children's great grandmothers turn 100, I've promised to take them to DisneyWorld. I suppose that's a longevity incentive).



And won't the kids be able to help themselves eventually?


Absolutely. As soon as they're old enough for working papers it's off to work to save for college(or for a car and first month's rent somewhere else if they decide they're not interested in furthering their education).


Not a criticism at all, but I'm not sure I see why you'd help the kids pay for grad school, but not college. I'd be more inclined to do the reverse. That gives a greater incentive to do well in college (getting better fellowships and what not), and also lets kids focus more on studies than $6/hour work study jobs.

Not paying for college starts the incentive process much earlier. My oldest in particular is very focused on achieving in school and saving money for college, much more so than her "more priveleged contemporaries". Holding out the carrot of paying grad school should give them enough of an incentive to do well in college. If they don't do well enough to get into grad school, that carrot will disappear. I'm not worried about work distracting them from their studies either. My best semesters were when I worked 45+/hours a week. Between work and school, I didn't have time to get into trouble like a significant number of student who never ended up graduating. Herein lies the rub. College is a horrible investment for the significant percentage of students who never go on to graduate. My in-laws probably sunk $100,000 into one of their sons' education and he never graduated college. He would be even worse off had he taken out loans for himself. Don't get me wrong, college is a great investment for many, but there is a huge survivor bias towards those who graduate. Those who don't graduate or do so with marginal GPA's could have better invested their time and their parents money elsewhere.


In any case, generally speaking, it sounds like the real issue for you--as for me--is making sure the incentives aren't operating to undermine initiative and hard work, but rather to encourage it. Are we on the same page as far as that goes?

I'm in agreement with you here. The application of incentives and knowing where, when, and if is the trick. In the end, I'm for few incentives along with the reward that hard work and accomplishment bring(or so I'd like to believe. We'll see if I soften up like my parents did with my youngest sibling).

I'll pay for undergraduate public university.

Here's why:

Having attended a major public university myself, I believe they are a great bargain. Good academics, at a good price, but no one takes care of you. You better learn to take care of yourself.

Additionally, when you see how hard some kids at public university work to manage courses plus work, you realize what a competitive world it is, and you'd better work your own rear end off to keep up. That's what drove me.

Additionally, Mom and Dad paid tuition and room and board. Kids still need to work if they want other stuff - and they always do want other stuff, so they will work.

I wouldn't pay for graduate school.

Here's why:

I know two people my age with masters degrees in econometrics - I call them "my direct reports" and they call me "the boss". Better off to get out in the real world first, and then maybe go back to grad school part time on your own dime when (if?) you figure out what you want to be when you grow up.

Anyways, back to the original topic: adults taking money from mom and dad in their 20s and 30s are just freeloaders. End of story.

jsantab428 said: I'll pay for undergraduate public university...

I wouldn't pay for graduate school.

Here's why:

I know two people my age with masters degrees in econometrics - I call them "my direct reports" and they call me "the boss". Better off to get out in the real world first, and then maybe go back to grad school part time on your own dime when (if?) you figure out what you want to be when you grow up.


Unfortunately, the entry level degree for a number of professions has changed or is in the process of changing from a bachelor's degree to a masters or doctoral level of degree. Pharmacy, Audiology, and Physical Therapy are all examples. Some college students already know what they want to be when they grow up believe it or not. Not everyone graduates with a degree in Liberal Studies.

There are lots of people who like to discount the idea of higher education by saying, "i make millions and I didn't go to college," or "look at Bill Gates, he dropped out,"

The problem with using personal experience as a basis for giving advice is that one can't see the entire picture. Here is some census bureau data showing the "value" of going to school. It's a little dated, 1996, but I doubt things have changed that much.

The average AA degree will net the individual about $116k more in their lifetime than a high school graduate. Bachelors degrees add the following above what an AA person would earn: average $308k, engineering $497k, even liberal arts nets $243k. Stepping up to masters earns one the following above a bachelors: average 180k, engineering $362k, business $375k, liberal arts basically worthless. And finally, increase from a masters to Phd nets the average person $188k, and in science $300k. Law and Medical degrees are the big winners of course, $750k for law, and $1mil for doctors.

This all tells me that on average, education is a good investment. You get to have fun for several years, and still end up making more money in the end.

I want to add in my two cents since I'm in college right now. My parents has always said to me, 'We pay for college, and that's it.' I also have a job right now to support my techy fetish (godamn it) and I'm planning on milking my parents to the fullest. Hrm.. that sounds a bit wrong but, what I meant is I'm taking summer courses and taking the most credits as I can throughout my four years to widen my options after college. As long as they are paying for it because they think it'll help me in the future/become independent/learn the value of working, I should use it. However, I don't want to be dependent on my parents after college because then they'll never respect me as an adult.

I myself don't respect people who continously mooch off parents even after college. I believe if a person goes to college and do well in school, they should be able to get a job to support themselves. Mind, it might not be what they want, but they can always work towards it while living on their own.

oh. and someone mentioned about babysitting and waiting for a package. I don't count that as mooching off. More like a favor kind of system. I help them with say, filling out taxes or calling customer service (they are immigrants, aka not very good at english) and they can return the favor by taking care of my future brats.

jsantab428 said: I'll pay for undergraduate public university...when you see how hard some kids at public university work to manage courses plus work, you realize what a competitive world it is, and you'd better work your own rear end off to keep up. That's what drove me. And xerty said: If your kid is heading to some good college, it's probably better in the long term that they spend their time in high school studying, getting good grades, maybe a scholarship, etc, than working at some menial job for a few bucks. My parents made it clear that my "job" was to do well in school and I got a modest allowance for spending money.

Excellent points. I'd add that based on my 7 years as a college professor at a decent but not great private university--most students there seem to draw the same message jsantab428 did.

And while we're speaking in anecdotes, I'll throw in my 2 cents. I went to that same university as an undergrad because they had a great debate program, good philosophy dept, and they paid my full way. As a consequence I never had to work for money (just internships, summer teaching at debate camps, and the like.) While the university wasn't great, that freedom enabled me to truly stand out: triple major, become valedictorian, win our only national debate championship, work for then House Speaker Foley, get to know several profs well, etc. And all that was key to getting a full fellowship at a first tier university for a Ph.D.

The only reason I bore you with these details is to stress that had I been working anything like most of my recent students, I couldn't have achieved anything like that collegiate record--and thus couldn't have funded my private grad school. And this was very clear to me at the time...not just with the benefit of hindsight.


jsantab428 also said: I wouldn't pay for graduate school....Better off to get out in the real world first, and then maybe go back to grad school part time on your own dime when (if?) you figure out what you want to be when you grow up.That's often true. Additionally, you can often make real money in a real job while doing grad school.

Some call it mooching- I'm not so sure.

My situation- I receive $200/month for each of my children from my father. I deposit this money into a 529 plan. While I also contribute to this plan, my dad's efforts are very helpful, and will really make a difference when college comes around. (Kids are 4, 2, and <1.).

This is something that he wanted to do, and offered to, unsolicited. The desire to help and assist your relatives is very natural in my opinion. He realizes that college will be darn expensive when my kids get there, and he wants to assist me in paying for their education, with the hopes that they can get through college debt free. I don't consider it mooching to accept this money. I think of it as accepting a gracious offer. Yes, it is true that this relieves me of upping my deposits to the 529 (if I so desired), so in theory I have more cash to spend/invest elsewhere.

That same position in 1989 for someone right out of school paid $18K. I know as my friend took it and lived with 3 other women in a small apt, just so she could be on her own. I am actually surprised that it is up to $30K already.

For someone right out of school and in a non-tech field, $30K is actually a good starting salary in NYC. I agree that he needs to find a way to cut corners,less take-out, cooking more, if he has an oven/stove, going out less, etc, to lose the $300 monthly dependency. Even moving to another borough and getting another roommate, maybe he can knock off another $100 (although 2br rentals are pricey.)


asteinb said: Sounds like the kid needs to find a job that pays more than $30k. Or move out of Manhattan.

For every story of some parents cutting their kid off and the kid 'seeing the light' and achieving financial success, you have many stories where the kid's career and financial situation lingers because finances hold them back from overcoming certain hudles like getting more education, changing jobs, etc.

Many of my former classmates recieved help from their parents. Their parents bought them a house/condo, paid for school, and all they had to do is focus on getting good grades. Today, their houses/condos have doubled/trippled in value (putting their net assets above 1M) and they have cushy lawyer/consulting careers. In contrast, a lot of the hard working students without parental support were so broke by undergrad time that they didn't pursue grad school - nor had the means to pay for it - and today they don't own a home and probably won't be able to buy one, and definately don't make as much money.

My point is that good kids + help = great idea (investment). Bad kids + help = bad idea (subsidy).

manuel said: $30K starting with a college degree(anywhere) is a great example of the futility of the wrong college education. The market is telling the graduate "your degree is worthless"; and yet the graduate and their parents paid the same price for the degree as one in chemical engineering(52k). OTOH engineering students have less time to get piss-drunk on their parents cash.

Note the 52k average starting salary is nationwide - in NYC I would guess this is a lot higher.
Agreed. I'm sorry, but $30k is NOT a good starting salary in NYC. With the liberal assumption that you are working 40 hours a week for 48 weeks a year, you are making about $15/hour pre-tax. I know for a fact you can make more than this temping in NYC, and I'm quite confident that if you are serious about starting a career that will give you a decent lifestyle down the line, you can find a job with a salary better than $30k in one of the most expensive cities in the country.

I'm in my 20's and almost all my friends get some kind of help from their parents. The friends receiving the help are all hard working and trying to be successful in their careers and take this help from their parents as support to achieve the goals they want. If these friends were slackers, their parents would stop giving them this financial help.

My parents also give me different forms of financial help. They never write me a check, but they help in other ways like letting me live rent free in their house during and after college. My parent's reasoning was, "It's better for you to live at home and save the money that you'd use to pay rent instead of paying it to someone else." I did save that money too, I didn't take it as, "Oh, now I can live a more lavish lifestyle."

I think you have to distinguish what type of help parents are giving their kids. Are they helping in the support of their kids reaching their goals, or are they helping so their kids can be comfortable and not have to think about goals.

DaveHanson said: But that assumes that the market is the proper arbiter of a value of a college degree. (Not saying you disagree, but one could infer this from your post).
If you're a grade or even high school teacher, you'll need a college degree, yet you're lucky to start at $30K in many areas. I would never conclude that a bright , hardworking student who went on to become a devoted teacher had received the "wrong education". That's not to say that a person should be entitled to help because they picked a low status or low-paying job--at least not necessarily. But the thinking that salary = worth or success is one reason we have way too many lawyers and not enough good teachers.


I disagree - I feel the market is the only and thus the proper arbiter of the value of one's education, etc - especially since we're viewing this from a parental 'financial' help perspective.

Certainly one could imagine a english major who loves teaching and feels her education was worth it even though the job only pays 40k. But that same english major could find that she hates it and feels trapped by the embedded investment for the credential(my wife's case). I don't deny the existence of non-financial factors but they're too individual to use for valuation. Same reason we don't get to sell our old car for another 5K because we 'love' it.

Note - there are many fairly low paid lawyers; and many barely qualified teachers with seniority making 70-80k. I think it's impossible to postulate that there are 'too many' or 'too few' of anything - the market and the incentives it creates are a much better judge of this than I.

asteinb said: manuel said: $30K starting with a college degree(anywhere) is a great example of the futility of the wrong college education. The market is telling the graduate "your degree is worthless"; and yet the graduate and their parents paid the same price for the degree as one in chemical engineering(52k). OTOH engineering students have less time to get piss-drunk on their parents cash.

Note the 52k average starting salary is nationwide - in NYC I would guess this is a lot higher.
Agreed. I'm sorry, but $30k is NOT a good starting salary in NYC. With the liberal assumption that you are working 40 hours a week for 48 weeks a year, you are making about $15/hour pre-tax. I know for a fact you can make more than this temping in NYC, and I'm quite confident that if you are serious about starting a career that will give you a decent lifestyle down the line, you can find a job with a salary better than $30k in one of the most expensive cities in the country.

By not good you mean not even livable.... You can't live in Manhatten on 30k a year. Figure taxes get his salary to 25k (roughly) and he pays 1100 a month X 12 month 13,200 in rent plus food and bills will easily put you in the 25k range. Not sure why the person in the article chooses to live in the city when you can find a cheaper apt in one of the other bouroughs and commute on the subway. In my opinion that is just not a sound financial decision.

I wouldn't go so far as to say anything but an engineering/computer degree is useless. Let's face a lot of jobs out there aren't technical and people with any kind of degree can do those jobs as they require communication skills or people skills or whatever. Perhaps media research analyst pays very well down the line but until this guy in the article gets down the line he should not be paying to live in manhatten unless its a job requirement (not a convenience). You can live somewhat comfortably at 30k but not in manhatten and you have to be very mindful of your budget in terms of eating out and such.