Bank of Mom and Dad

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The New York Times just ran an article titled ‘The Bank of Mom and Dad‘* about parents giving financial aid to their children well beyond college. Examples range from paying for extended schooling to paying for doggie daycare. Coincidentally, Make Love, Not Debt also posted about how her parents are not paying for their wedding. A very lively discussion ensued, with responses varying from speechless to, um, not-so-speechless. I’ll just say that it brings up my feelings about entitlement.

To be sure, I have made my own withdrawals from the Bank of M&D. Beyond the usual food and shelter up until 18, my parents helped me pay for out-of-state college. In fact, they gave me a choice:

1) State University + Porsche
2) Out-of-State University

It was probably a trick question, but they really did offer me this. I picked #2 nonetheless. We made an agreement for them to pick up 2/3rds of all expenses, if I paid for the remaining 1/3rd. At an estimated $24,000 a year total, 2/3rd of that times 4 years, that equals an astounding $64,000 (a Porsche Boxster is about $45k). As I’ve shared before, this also left me with about $32,000 in student loans myself.

Although it was not easy for them (I’m pretty sure the took out a home-equity loan for some of it), I believe my parents were perfectly willing to pony up such cash because the school I went to was one of the top schools in my area of study, and they felt it would help set me up for later on in life. Was this something I deserved or should have expected? No. Am I forever grateful for the opportunity? Yes.

(Actually, I would have gone even if I had to pay for it all myself. Of course I didn’t know squat about money back then either.)

While I think all Parental Financial Aid should be considered a bonus, I also think sometimes it can be more harmful than helpful. At some point you need to let your kids ride the bike on their own. If they scrape their knees, so be it.

Of course as with everything, there has to be balance. You don’t want them failing courses because he/she is working at the drive-thru all night. But I think every kid should have a side job in school. It teaches you time management and money management. I believe the Bank of Mom and Dad is going to be a growing topic of conversation as the transition from kid to adult seems to last until we’re 30 years old now. What do you think?

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  1. you gave up a PORSCHE?

  2. reading the NY times article made me realize that the parent generation is also a slightly different one from decades ago, so there’s probably some mix into that too. as in, the parents are willing/able to provide their kids with the quality of life that they see fit. Or, they wish to support their transition so they can achieve the career/life style that they want.

    The flip side is of course the potential harmful effects… bringing about many many different responses from the children, especially if they weren’t raised with the right type of values. (i.e. those sense of entitlements that seems to be frequent among our generation).

    for me, I was never offered some sort of option when I graduated from high school. I’ve been paying for university/college tuition myself—and that’s perfectly okay w/ me since I’m living at home for free. To be honest, once I move out (when I graduate), I do not plan to accept any financial help from my parents—regardless of my situation. They will be near their retirement age soon, and if a situation arise, I’d much rather get in debt myself than get them in debt. They’ve done enough for me for a long long time now. One of my personal/financial goal is to be able to fund their retirement and provide them w/ early retirement.

    The thing is, although I was never really offered some sort of financial assistance option, I KNOW for a fact that if I ask for the help, they will provide for it, which is enough (actually, plenty) for me.

  3. That sounds like the arrangement I had with my folks. They paid for 2/3 of my tuition, I was responsible for 1/3 tuition and “everything else” — books, fees, housing, food, transportation, etc.

    I managed to make ends meet by going to a good, but small, state school in another state … but I lived and worked for a year to gain residency first, then continued working while I went to school. It wasn’t an ideal situation studies-wise, but I became a master task-juggler. Heh. [And I left school with zero debt.]

    My brother had the same deal, and instead went to a local [so he could live at home and save money] very good private school. Ten years later, he’s got a great job for his field, but he’s still paying off that debt, and I had zero guilt about leaving my once-lucrative career to stay home with the kids now.

    Different strokes for different folks, I guess.

  4. I think I like the training wheels analogy. Help them out alot early on during college, provided they get a part time job. Then gradually decrease the help as they get used to managing finances.

    Also, I agree that any help should be considered a bonus. I felt very entitled to help when I first began college and I don’t think it was productive at all.

  5. If parents can afford to help their kids pay for college and the associated living expenses that go with it, it’s reasonable for them to. It not a requirement but if they are financially on track with everything, it’s a really nice gesture to want to help your kids start out financially as in the clear as possible.

    I think it becomes a problem when the Bank of M&D gets tapped as often as an ATM machine. I have a 36YO sister. She makes decent money, has no expenses, is always broke and needs to “borrow” money from my parents all the time. She can’t afford necessities yet somehow manages to come up with $100+ for a trip to the salon or more money to go to NYC for the weekend with her bf.

    When you can’t cut that line of credit from M&D because you’re too broke paying for luxuries, I think parents may need to re-evaluate if they’re doing more harm than good with their good deeds.

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  7. When I went to college back in the dark ages (early 80s), I went to a public state college, and in the first two years, I had scholarships that paid around 1/3, with my parents paying the rest. The last 2.5 years, I was in the co-op program where I worked half a year in my field (computer science), and went to school half the year. Between my scholarship and the money I saved during the working period, I paid for the second half of my college education myself.

    I live in Virginia, and I have always told the kids that pretty much any area you want to go into, there is an excellent state school here for that (Virginia Tech and University of Virginia cover most subjects very well). So I’ve said, we’ll pay for a state school, or pay the same amount toward another school if you want to go elsewhere, and you’ll have to make up the rest through scholarships or work.

    Now, we’re still a few years off (14-year-old), and I don’t know how I might actually respond in a few years if he wants to go some place more expensive, as we can probably afford to pay for a more expensive school. Hopefully the lessons I’ve tried to teach will kick in with the kids – the difference between “afford” as in “have enough money for that” and “afford as in “willing to spend that much money on that particular thing”.

  8. I come from Asia where parents are responsible for their children’s education and beyond. The reason is because when they grow old, we in turn have to take care of them. If possible, they also try to buy a house for each child that they have. I know of families where they sell of everything they own to pay for their child’s education.

  9. My parents didn’t set the bargain forth in the same way, but its effect was pretty much the same. They’d saved and set up college funds for myself and my two siblings. So once we finished high school, that money was ours to spend (on college) as we so chose.

    So we could go to a private or out-of-state school and pretty much spend it all. Or we could go to a state school and, at the end of undergrad, keep whatever was left over. All three of us chose the state school route, on top of which we got Georgia’s HOPE scholarship, which covered our tuition. So even after law school (which I also did at the state university), I had a good chunk of change left over, out of which my various post-graduation expenses get paid.

  10. I am from india, and its custom that parents will pay for their childrens education and beyond. when i went to college, it wasn’t even an option for me to pay my own way through school, my parents were going to pay for it no matter what. similar to the post above, indians are very close knit families and when my parents become much older i will be taking care of them in my own home. i just graduated college in december, at 22 years old, and i know and will be more then happy to take care of my parents when the time comes. we dont put our parents in homes, they took care of us when we needed it, and we will take care of them when they need it. simple as that.

  11. Interesting Sri, makes sense to me. Kids for many are the biggest investment that could exist, and trying to ensure they have the best opportunity to succeed could motivate this type of response.

    I will try to “significantly” assist my kids too with their housing, so long as they are very financially sound, so that they can save all the interest that would otherwise be spent on a 30-yr mortgage. If each generation did this we’d be millionaries at some point!

  12. Oy. I would rather stick needles deeply into my eyes than to receive any help from the Bank of M&D. And doesn’t everything hinge on M&D having money and savings? My M&D had nearly nothing.

  13. I know, I know, sometimes I think of the Porsche and the good times we could have had…

  14. I’m still in college and I have received very little from my parents as far as financial help goes. I go to a private school that is quite expensive (nearing $40,000/year) but luckily almost all of that is covered by scholarship. The part that isn’t is paid for by me with my part-time job.

    I do get my car insurance paid for by my mother, but I’m convinced that is only because she recieves child support from my father and she has to at least make the appearance of providing for me.

    I would never think of asking my parents for an excessive amount of money unless I absolutely had to. Generally, feeling indebted to family is not a good a thing in my opinion.

  15. At age 70+, with little assets, a child with any sort of decency would realize its time to take care of the parents.

    I know I’ll have to take care of my parents. They saved very little while raising me and will be depending on social security + small retirement from government & state work.

    They did raise me, put me through parochial school, then college, and let me live with them during some tough years as an adult and for that I owe them.

    I look forward to the day I am able to reciprocate all the gifts they gave to me.

  16. Oh man a Porsche would have been tempting. However, being a cheap Asian I would have chosen option 3) $64k in cash, attend state college fully financed with student loans at 2.5% (which I have and am paying over 15 years).

    I certainly hope that most Americans are not like the Make Love not Debt people (including Her’s parents who – no need to say it, and Her who is the epitome of the Entitlement mentality of America’s liberal youth a la France). But then again if all Americans were like Jon and me (and most readers I would assume), the US economy would suck a la France.

  17. “I certainly hope that most Americans are not like the Make Love not Debt people (including Her’s parents who – no need to say it, and Her who is the epitome of the Entitlement mentality of America’s liberal youth a la France). But then again if all Americans were like Jon and me (and most readers I would assume), the US economy would suck a la France”

    what the HELL are you talking about?

  18. I used to feel entitled to things from my parents, but as I grew older I started feeling less entitled. I remember having a conversation with my mom when I was in middle school when I asked if I would get the house after they died. And my mom said no, they are going to donate what they don’t spend to charity when they die. I was pretty upset over that at the time. Now I’m graduating college and moving far away from home, my mom called me to remind me to always remain in contact so that should anything happen to them I can be contacted to inherit their stuff. I’m like why are you saying this? I don’t need your stuff.

    It is said that independence is the one gift that parents can’t give to their children, my parents came pretty close by making it very clear from an early age that I should not expect unlimited assistance from them. I think that early realization that I can’t always count on my parents shaped a lot of how I delt with problems. Knowing that I can’t always count on someone else made me more motivated to try and learn to do things by myself as much as possible because screwing up now when my parents are still willing to help is cheaper than screwing up later.

  19. I guess over the years I’ve taken my fair share from the
    M/D bank. I would think in real cash handouts/university as an adult it’s not much more than 10K (I went to a super cheap school in the 80s). The thing that bugs me about the lending practises covered in the NYT article, are the little luxury things picked up by the parents. That, to my mind, is the parents not bloody knowing when to stop. Doggy daycare for gawds sake! If you are young and poor sometimes you have to do without. It’s a cliche, but it’s so so true – it builds character and values. Having everything handed to you makes you what? Spoiled is the word…. Ok, maybe it’s not all that bad…. But the Bank of Mom and Dad can do more harm than good.

  20. I’d rather my parents save up the money for their own retirement rather than paying for frivolous things for me (doggy daycare was mentioned by you).

    As far as schooling goes, my parents told me you can go to the local state school (happened to be the University of Memphis in TN) if we have to pay, and live at home. If you get a scholarship, we will put the same amount we would have been paying for U of M toward whatever other school you want to go to. They told me this early on, in middle school sometime. I worked my butt off in high school, researched scholarships a lot (starting my freshman year), decided probably the best way to get a scholarship was to be a National Merit scholar, and studied up for that, and took it for practice my sophomore year. By my junior year when I took it and it counted, I easily made National Merit scholar and that got me a full scholarship to Texas A&M (also was offered one at U of Alabama). I see nothing wrong with what my parents decided, it was prudent for both of us, they knew I was smart enough to get a scholarship. I plan on doing the same with my child, especially since her local school will be pretty good, if that’s what it comes down to (U of Texas at Austin).

  21. I think feelings of entitlement vary a great deal depending on family wealth and history. As long as I can remember I knew my parents would pay for my college education, at any school I chose. While I am grateful and recognize the privilege of my $250k+ education (4 yrs of boarding school and $40k+ annually at a private college), I don’t feel like an entitled brat for expecting it. My grandparents footed private college bills for all of their children (my parents, aunts and uncles), allowing the children to lead successful lives. My father has indicated that he will pay for graduate school too (although it’s possible/likely my firm will foot the bill for an MBA). I have no qualms accepting anything my parents want to offer; I know they wouldn’t do so to the detriment of their own retirement plans. I fully expect to pay whatever is necessary to give my own children (as yet unborn) the best education possible. It is clear to me that future success and earning power is directly tied to the quality of education one receives. In my view, my children are entitled to an education, but entitled lacks any negative connotation in that statement.

  22. I’ve had a part-time job from the moment I could – 14 years old. At no time have I not been earning, but my parents have helped out in many ways and they’ve been happy to do so – no strings attached. Yes, they have been financially able to help and even now, as I move out for the first time (things are different here in Australia – we don’t go out-of-state for college), they’re offering to help out with set-up costs. I say help, because they’re not paying for everything, just something towards the costs.

    This sense of entitlement people talk about is different and it all depends on what you’ve been brought up with and the attitudes etc. I’ve never wanted for anything, but I don’t expect it all to come my way.

  23. I paid 1/3 and my parents 2/3 of all my state college related expences. I met a guy in school whose father offered to keep working his job and not take early retirement in order to finance his son’s education. My friend chose to put himself through school, drive a beaten down truck, and work near full time while taking a full-load of engineering classes at a tough engineering school. I was always amazed that a teenager could have that kind of maturity right out of high-school.

    I like the points about asian and indian families – good policy.

    I think more young people need to feel less entitled. What frustrates me the most is seeing high school friends burn through bank of M&D funds to get a degree that has no future earning potential, because, like, pottery is such my thing. These people spend 40-50k to go to school, then run straight home after getting their useless degrees.

  24. Looks like a bunch of people haven’t gone back to read and re-read the updates.

  25. Richby30Retireby40 says

    Great post. Wow, I can’t believe your parents gave u a porsche option!

    I would have gone to UC Berkeley and got that Porsche anyday! 🙂

  26. Great blog Jonathan.

    Have you heard of people paying back their parents’ gifts/loans once they “make it?” Do you plan to pay back your parents?

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