How Do We Gift Money to Our Irresponsible Kid?

Dear Penny,

We are in a position to gift to our adult children, all married and, for now, employed. While well educated, one of them is reckless with money and debt management. 

We have spoken to them about financial workshops in general. Is there any way, in your opinion, to gift with the understanding that attending at least an online workshop or meeting with a planner is tied to this gift? Yes, we know it sounds controlling and manipulative, and they are adults. Yet watching one of them, an in-law, pile on debt because that is the way they were brought up is difficult.

Also, is there any way for one party in a marriage to protect him/herself as the partner amasses debt, other than divorce?

-D.

Dear D.,

Putting expectations in place before gifting money isn’t controlling or manipulative. If anything, spending an afternoon in an online workshop or with a financial planner is an extraordinarily low bar.

What gives me pause, of course, is your second question. I know of no solution that allows a concerned parent to protect their adult child from a spouse’s wayward spending. If your child is concerned, they need to consult with an attorney who’s familiar with marital property laws in their state.

But unless your child has asked you for help, the question strikes me as meddlesome at the very least. And if you’d be gifting in hopes of interjecting yourself in your child’s marriage, you’re absolutely crossing into controlling and manipulative turf.

I frequently get letters from people who are worried about someone else’s finances. Rarely is it clear that the letter writer knows the specifics of the situation. An even bigger theme: Unless begging family members are hitting them up for money, the letter writer hasn’t actually been asked to help, or even for advice. So I’m always left wondering whether the letter writer actually knows that there’s a problem — or if they’re just guessing as an outsider about what’s going on.

But I’ll give you the benefit of the doubt here and take you at your word that one of your children is making bad decisions with money, and their spouse’s spending is to blame.

Giving a blank check to someone who has a lousy track record with money is the worst thing you can do. Requiring them to learn about managing money is a decent start. But it’s also a toothless strategy. Your offspring can always pay lip service to advice, and then ignore it.

Plus, I’m not sure a lack of knowledge is the root of the problem here. How many people max out credit cards despite understanding the exorbitant costs? The problem isn’t that they don’t know any better. It’s that bad habits are really hard to break.

If we were talking about tens of millions of dollars, I’d tell you to work with an estate-planning attorney to structure a trust for your children. You wouldn’t want them to suddenly inherit a fortune with no rules in place. But since you posed your question to me, an advice columnist, instead of a wealth advisor, I’m going to guess we’re talking about a smaller amount of money. Regardless, the basic principle is the same: Start small. Don’t give any of your kids the opportunity to blow a large sum at once.

Have a discussion with each of your children and their spouses before you give them money. It’s perfectly reasonable to tell your kids that you’re giving them money with expectations for how they’ll use it. You could specify, for instance, that you want them to use it to pay down debt or invest in a 529 plan for your grandchildren’s future. Or you could leave it open-ended, while making it clear that you want this money used for investing vs. upgrading to a more expensive car. The important thing is to communicate that future gifts aren’t guaranteed.

One thing I’m wondering: Would it be so bad to require that each of your children sit down with a financial pro as a condition of receiving the money? Even if you approve of how your other kids manage their finances, they may be able to make even better choices as a result. Plus your child with the bad spending habits won’t feel like they’re being cast as the black sheep if they know you have the same expectation for their siblings.

Start by gifting low amounts with high expectations. And if these gifts would in any way jeopardize your own retirement, know that you cannot afford to make them.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to [email protected].

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