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I don’t know what else to say other than “well, yeah...”
$200,000 is an enormous amount of money to receive post-tax early in life. Throw in years of living at home by you subsidizing their expenses...to save more.
Yes, I’d expect a positive outcome with life’s red carpet simply rolled out.
But students don’t spend $200,000 on school in general...and parents doubtfully have that much saved for their kids for college...even using tax advantages vehicles. So yeah, they’d be in a good spot if they just got that.
School doesn’t always cost $200k but you could say there’s an opportunity cost to the 4-5 years of time invested.
$200k or even $100k may be red carpet treatment but if a kid can work hard, budget and save a substantial amount on their own - I’d say $200k is a good investment that could potentially put them DECADES ahead of their peers. THAT is something I would love to do for my child.
The saving on their own part is most important because $200k could vanish quickly in the hands of most Americans...especially younger ones. If my child could save/invest ~$150k of their own money by say 25 - I’d gladly match it because I would know they know the value of dollar and won’t become a slave to the debt machine. It’s amazing how a “little money”/no debt front loaded during the younger years can have an exponential impact on one’s life.
I've worked in investment management/wealth management for a long time. I've seen parents give kids trust funds many, many times. 9/10 you end up with an entitled kid who doesn't know how to work and fights every step of the way to withdraw more money than they should. Giving someone money (even in a fund that can't be touched until they are 25) doesn't do anything to teach finance. College can be affordable. Send them to a community college for a few years, then transfer into a traditional university and require them to work while doing that. They can graduate with little debt, and take actual courses on finance/accounting/economics that will teach them how to properly manage that money.
From what I've seen in the wealth management industry, kids who are just handed money without having to work for it rarely treat that money properly.
You’re telling me challenging a kid to accumulate $150-200k by 25 isn’t teaching finance? LOL. What it takes to save that amount at a young age pretty much weeds out a “gimme more so I can spend it” attitude. If your child blows all their money on trinkets than you aren’t teaching them right. Heck, I have every birthday/Christmas card from about 8-9 years old with the money still in them...yes, bad investment but at this point it’s symbolic of my PhD in early retirement.
You don’t need college to learn finance...assuming the parents have any common sense. Granted, common sense may be a rare thing considering how many people basically have a negative net worth. Umm, spend less than you make! Children will often pick up spending habits from their parents...and the degree to which they value material possessions. Get your child used to having a substantial amount of growing money they don’t spend under any circumstances. Make sure NOT to foster a keeping up with the Joneses attitude.
BTW - college is still on the table...just at a slightly older age where finances are taken care of and the kid has had plenty of time to figure out what they want to do in life.
Last edited by eddiehaskell; 12-13-2019 at 08:34 AM..
Eddie, get back to us and let us know if it worked with your child.
Good luck! Rg
I will!
I see this a long term strategizing...you have to start young mentally preparing the child for their reward. If properly prepared you will have saved them many years of their life.
If a parent has a spare $200,000 for each and every child in the family, those kids could get a useful college degree and come out without any debt and a lot of leftover money in an investment account.
College degrees are a good investment if the degree is carefully chosen and the child is level-headed and intelligent.
If the child is not level-headed and intelligent, it would be throwing $200,000 away to turn it over to that child at such a young age.
If the kid is a self-indulgent partier, then if a parent happened to have a spare $200,000 in cash laying around that they didn't want, it could be put into a trust fund for the kid and dole out a pittance of income every year until the kid discovered that JJ Wenthworth would give him a few pennies on the dollar to buy that trust fund from him. Then the money would be gone.
I have lived a pretty conservative life (I don't mean politics). I don't spend much money on luxuries, never have. Have never run up much debt, keep my cars a long time, live well below my means - always have.
And yet even I think that giving me $200,000 at age 18 would have been an insanely bad idea.
Few 18 year olds can make half decent decisions about things like "food vs. beer - where should I spend my last $20?" You really think they can make good decisions about a huge pile of money like that?
Better to give them a $20K 'starter kit' that would cover a good but unexciting used car, first-last-deposit on their first apartment, kitting that out at IKEA and a little bit of an emergency fund for medical co-pays, job gaps and such.
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