Toronto Life article - The Bank of Mom and Dad

[Fodder]

There is so much in this article that is worthy of facepunching. I won't spoil it for you.

http://www.torontolife.com/informer/features/2014/11/04/the-bank-of-mom-and-dad/

Your jaw will drop.

[scottish]

Here is my quote of the month:

I came to believe that affluent baby boomers have a moral obligation to help their kids.

and she doesn't mean they have an obligation to teach them to work hard and spend wisely.   

[senecando]

In Toronto, are there jobs that are not Marketing or for Non Profits?

[RFAAOATB]

What's wrong with this?  It can be a spectrum.
Cash infusion to children so that grandchildren can afford private school?  OK.
Cashing out your retirement to help your kids?  Too risky for my taste.
If you've got the money, generational improvement is a good use of it.  I've been a beneficiary of the Bank of Mom and Dad, and intend to continue the tradition.

and she doesn't mean they have an obligation to teach them to work hard and spend wisely.   

You'll have more time to work harder and smarter when you aren't drowning in debt.  Why does this forum romanticize hard work when a popular goal is early retirement?  Not having to work hard means you can work meaningful.

[Fodder]

RFAAOATB - what's wrong with the article isn't necessarily wealth transfer from one generation to another....it was just some of the lifestyle expectations, i.e., what's viewed as normal.

A few key quotes for consideration:

"Without [the money], they wouldn’t be considering sending their daughter to private school or eating out whenever they want. Without it, they would either be house poor or living in a neighbourhood they didn’t much like."

"Millions of dollars are being transferred within families, usually between living generations, in order to prevent adult children from going into a dangerous amount of debt as they enter the housing market and struggle to pay for their own kids’ nannies, summer camps, piano lessons and iPhone bills."

“We were in our 30s when we met, and neither of us had any equity,” says Amy. “I was coming out of my third university degree and not making much. We would never have been able to buy without that initial help.”

"I came to believe that affluent baby boomers have a moral obligation to help their kids. They lived through so many years of prosperity and were able to buy houses cheap, pay them off and watch them appreciate wildly, take annual tropical vacations, join country clubs and drive German sedans."

"In all, since his kids have graduated from school, he’s handed over roughly $300,000. He took out a line of credit against his house to do so."

[Goldielocks]

Oh, my.

This is my SIL and her family.  It could have been her interview, but based in vancouver.  My goodness, even the tone of the entitled justification on why the help is "natural" is spot on.

With the following edits this could be my SIL:

Without it, they wouldn’t be considering sending their daughters to private school extensive ballet lessons or eating out whenever they want taking disney trips twice a year.
....................
She wouldn’t feel comfortable driving a fancy car quitting her 20 hr/ wk job  or going on lavish vacations because her parents might notice and think, “Gee, I guess they could have paid the higher mortgage payments after all.”


Oh, and yes, we knew about the parent help at first (the first move to the townhouse, then help with utilities, car and mortgages) but they have been pretty quiet about their investment in the latest $650k house and the $60k car they recently bought for them.   (Bought because it was a deal, of course).   

This is because 5 years ago, I actually asked MIL directly to stop talking about it, as it stressed me out and I was just happy that SIL was not coming to us for money.  (Best thing I have ever done was to close it off and ignore it -- until articles like this, of course...)

I don't know what churns my stomach more, though
-- the thought that their son (who was previously disabled and off work for 2+ years with 2 kids under 7 yrs) is completely excluded from this largesse, or
-- imaging being the actual recipients of handouts and what that would do to my ego.  (my ego can be larger than needful)

[GuitarStv]

Mother of God.

[Tai]

It explains so much :(

[MandalayVA]

I can sum up that article in four words:

WAAAAAAH!  IT'S NOT FAAAAAAAIR!

[HairyUpperLip]

That article was depressing. I had to stop reading it. :(

[lifejoy]

This part: "Would they have to pull their youngest child out of daycare?"

Bwahahaha two unemployed parents, and they're worried about daycare costs?! This doesn't add up.

[greenleaf]

If you've got the money, generational improvement is a good use of it.  I've been a beneficiary of the Bank of Mom and Dad, and intend to continue the tradition.
...

You'll have more time to work harder and smarter when you aren't drowning in debt.  Why does this forum romanticize hard work when a popular goal is early retirement?  Not having to work hard means you can work meaningful.

I agree with this completely, but I think the "If you've go the money" part is key.  If like one of the parents in the article, you're borrowing against your house to do it, you don't qualify.  That part makes me slightly nauseous.

I've been the recipient of gifts from my parents, but I've never needed or spent any of it (on anything other than index funds), even in grad school and when we bought our house.  I'm not a spendy person to start with, but I think having that money actually makes it easier to live simply and inexpensively.  I know that I could have more fancy things, but choose not to, which makes living without something that everyone else has (cable, a second car, a fancier house, etc.) a choice and not a hardship.  Having a cushion just makes life easier, psychologically.

My parents know that I'm responsible with money, and I assume they would not give any if I weren't.  If I spent the money on a payment on a fancy car or cable or whatnot (and wasn't maxing retirement accounts also), I'm pretty sure they would stop.  I plan to give money to my children in the same way.  Hopefully they will have the same attitude towards it.  If they don't, I'm not sure what I'll do.

[Jouer]

I think intergenerational wealth transfer is a beautiful thing and doesn't need to occur once the eldest are passed away. Many high net-worth individuals aspire to transfer their wealth to their children - part of the self-actualization block on Maslow's Hierarchy of Needs, I suspect. I dunno, I grew up poor. But that seems to be the case.

However, I don't think there should be an expectation from the adult children that it will happen....and I certainly do not see it as a moral or immoral act.

The part of the article that gets me is a family making only high-5 digit or low-6 digit combined salary needing private school for their children and expecting to live in a nice neighbourhood in an expensive city. I guess they got comfortable in those kinds of surroundings growing up. Of course, they should have gotten better paying jobs like mom and dad did so they could afford those amenities.

[Dollarbill49]

I wish I had taped my knuckles before reading this.  Now they have open wounds from all the facepunches I had to deliver.

What gets me the most in this article is that only one of the recipients of their parents' largesse (sp?) even mentions paying back the money.  How selfish and inconsiderate of them.

I also thought Canada was better off than here in the U.S.  It sounds like greed and self-indulgent gotta-haves are just as prevalent in the northern third of the continent. 

[galliver]

RFAAOATB - what's wrong with the article isn't necessarily wealth transfer from one generation to another....it was just some of the lifestyle expectations, i.e., what's viewed as normal.

A few key quotes for consideration:

"Without [the money], they wouldn’t be considering sending their daughter to private school or eating out whenever they want. Without it, they would either be house poor or living in a neighbourhood they didn’t much like."

"Millions of dollars are being transferred within families, usually between living generations, in order to prevent adult children from going into a dangerous amount of debt as they enter the housing market and struggle to pay for their own kids’ nannies, summer camps, piano lessons and iPhone bills."

“We were in our 30s when we met, and neither of us had any equity,” says Amy. “I was coming out of my third university degree and not making much. We would never have been able to buy without that initial help.”

"I came to believe that affluent baby boomers have a moral obligation to help their kids. They lived through so many years of prosperity and were able to buy houses cheap, pay them off and watch them appreciate wildly, take annual tropical vacations, join country clubs and drive German sedans."

"In all, since his kids have graduated from school, he’s handed over roughly $300,000. He took out a line of credit against his house to do so."

OMG all of those. >_<

[Tai]

The daycare thing might be because many quality daycares have waiting lists years long, you don't want to lose your spot because of temporary unemployment.

[Goldielocks]

The daycare thing might be because many quality daycares have waiting lists years long, you don't want to lose your spot because of temporary unemployment.

Yeah, but one person is temporarily unemployed and the other is a SAHM.   Seems to me that <$150/month for parent participation (in which parents contribute over half the labour hours) preschool would cover just about all the socialization needed.

[scottish]

Why does this forum romanticize hard work when a popular goal is early retirement?

Hard work is its own reward.   It's easy to build a huge sense of entitlement when someone (parents or politicians or whoever) just gives you everything.   Not so much when you forgo a new car (or some other shiny) to achieve your objective.   A big sense of entitlement leads to more consumerism, which leads to less financial independence.

Over the years I've seen so much work in North American work displaced to Asia that I view most things as a global competition.     It's not that the Asian companies and people are better at doing the work so much as how folks here have not been willing to compete effectively.     Yes wages in Asia are much lower than in NA, and this has definitely been a big driver for the folks in the c-suite.     But the long term costs aren't actually better.     

I remember when at one company I worked, we moved a big chunk of R&D from Ottawa to Guangdong in China.    A good engineer here could do the work of a team of 5-10 in China, so it was roughly cost neutral.   Until you realized that you still needed a local engineer to supervise the team.    And in the really long term, this activity taught the Chinese folks how to build competitive products, and they went off and did just that.    Next thing you know the executives are complaining that we can't compete with the Chinese companies.

So what does this have to do with the Bank of Mom and Dad, you ask?    In fact I think it's great to keep the wealth in the family.    It's the sense of entitlement that worries me.   Developing a sense of entitlement is going to make it hard  in the long run.

[RFAAOATB]

So what does this have to do with the Bank of Mom and Dad, you ask?    In fact I think it's great to keep the wealth in the family.    It's the sense of entitlement that worries me.   Developing a sense of entitlement is going to make it hard  in the long run.

And this is a problem that parents have to solve.  Give kids a lot of money and comfort, but give them the Spider-Man talk.  With great power comes great responsibility.  Use your wealth and connections to help others like Joe Kennedy's Joe for oil, or be a State Rep like Joseph P Kennedy III.

Living on the couch is one option, but aspiring to more noble endeavors should be attainable when all of the needs and many of the wants are of no great worry.

[pbkmaine]

I went to a (wonderful) private girls school with the daughters of the wealthy. I may have been the poorest kid in the class - my parents were teachers who valued education. I think my classmates' trust funds tended to cripple them. Having that backstop seemed to do something to their initiative. I was just back for a reunion and am one of the highest achievers in my class. The message I got from my parents was that they would give me the best education they could afford and after that it was up to me.  It was a powerful motivator for me.


Sent from my iPad using Tapatalk

[GuitarStv]

In Ontario private school teachers are paid less (often much less) than regular teachers, so often the dregs from the teaching world end up there.  They do not have to be licensed teachers or a have background in child education to work in the private industry.  Private schools do not have to run criminal checks on their staff like public schools do.  Many private schools do not meet the same course requirements as our public schools.

Costing more certainly doesn't equate to 'best education'.

[rocksinmyhead]

Now it’s the secret force powering the city’s middle-class downtown economy. Millions of dollars are being transferred within families, usually between living generations, in order to prevent adult children from going into a dangerous amount of debt as they enter the housing market and struggle to pay for their own kids’ nannies, summer camps, piano lessons and iPhone bills.

OMGWTF

My in-laws give us money, which has always baffled me, but I think they do it in a good way. Their logic is that my husband got a full scholarship for college, and so they are paying back the money they would have spent on college. My husband also handed my in-laws every single cash envelope he got for 20+ years of birthday and Chinese New Year's gifts and my FIL put them into the stock market, which ended up growing to $17,000 by the time we were alerted to the existence of the money.

My in-laws give us money in a way that makes it hard for us to inflate our lifestyles:

1. Money is intermittent. We don't get a $500 or $1000 ACH every month. Instead my FIL will just e-mail us out of the blue and say, "I'm sending you a check for $X." It makes it hard to plan a higher-spending lifestyle around it, because I can't take on financial obligations outside our salaries. I usually end up just putting it toward our next savings goal; one infusion let us finish paying off my student loans, another went into our IRAs, and third went straight into the house down payment fund.

2. It's definitely conditional on our continued good behavior. Money seems to show up after we do something they like. (Oddly, these things are often profitable in themselves.) When we relocated for better jobs, a check showed up a few months later which covered the moving costs. If either of us were to do things that were risky, stupid or irresponsible, the money would vanish in short order. We got money when my husband and I were both working full time and part time jobs simultaneously too. My FIL only alerted us to the existence of my husband's investment account after he got a thorough rundown on our finances and how I was managing and investing them. I know that a similar, smaller account exists with the remainder of my BIL's gift money and it's top secret until he's considered mature enough to handle a decent sum of money at once.

That sounds like a pretty cool way to do it.

Other than the daycare thing, Amy and James sound pretty legit and like her dad was in a position to help very easily. Same with the woman whose grandfather gave her $100k. I can't really facepunch for that.

The guy who went into debt to help his kid (who's a DOCTOR?!!?) is really scary.

[Melody]

I recived a small one off gift of $10k from my parents,  because they did the same for my sibling (who wad told they could use it towards the wedding or the house deposit, they chose house!) As I am saving for a house, single and older than my sibling was when they married, I got a one off cash injection into my first home account (this is a government account that offers a co payment and taxes the interest earned at a lower rate, and the funds can only be used for a house, so there is no way for me to access them and inflate my lifestyle). I didn't ask for this money, but I appreciated it, and with the cocontibution and interest its grown to about 12.5k now :)

[TN_Steve]

last wave boomer here.  Sheesh.  No way I'd do that to my kids.  Granted, we paid for high-end schools.  But now, they are are on their own, although we will do (and have done) loans, with note and interest, in appropriate situations where it makes sense for both parties.

This comment from the article sums it up nicely:

Well, to be fair, I was debt-free when I was five years old. Why? Because my parents took care of everything for me - so I had no reason to earn or worry about an income, as a five-year-old.

On the same way of reasoning, they're debt-free, too. Nothing to worry about - because mommy and daddy took care of it. Debt-free? I guess so. Independent? Absolutely not.

[daymare]

That article is all kinds of crazy.  Mostly that the recipients are keeping these wealth transfers a secret and pretending like all their financial success is their own.

I read an amazing book last year called Black Wealth/White Wealth (by Doctor Shapiro & Dr. Melvin Oliver), so for those that are interested in wealth transfers (especially the race component), it's an absolutely fascinating read.  It made me think a lot about the role of wealth transfers in families.

I personally received the biggest & best gift from my parents - a paid for college education, and tons of their time and effort (and money) growing up, that enabled me to learn lots and be a competent human being.  That's a really big wealth transfer - having no debt has made a REALLY big difference in my life, and it was something they could afford to do.  When I got married this summer, my parents gave me 15K.  It feels crazy to get such a big gift, but it's also (again) something they can afford, so I accepted it graciously.  Actually, going down this train of thought makes me think of how much wealth my parents have transferred to me - paying for college and all food & textbook expenses, a 5K check when I graduated, 15K when I got married, and they bought me a laptop for college and just now bought me a new one (to replace said previous now 7-year old laptop).  Not to mention when I was in college they paid for my plane tickets home, and provided a place to stay for my breaks.  I don't actually need any of the money my parents give me (and have been completely financially independent since graduating), and have a good life regardless (my husband and I save 50% of our income).  But ... boy, is it easy to forget that I actually have benefited tremendously from wealth transfers.

I think that's the biggest problem - people take these wealth transfers, then believe (hypocritically & incorrectly) that all of their success is due to their own hard work, and other people's lack of success is do their own failure.  That's a really terrible situation.

[daverobev]

I guess the worst thing is that all this extra cash just pushes up prices.

It's cyclical though. When the boomers stop, their children will be poor and unable to pass down to *their* children, who in turn will have to work hard..

TO and Van are due a correction. Just needs something to trigger it. Maybe this oil price cut. Who knows.

But honestly... who cares?

[pachnik]

It's cyclical though. When the boomers stop, their children will be poor and unable to pass down to *their* children, who in turn will have to work hard..

TO and Van are due a correction. Just needs something to trigger it. Maybe this oil price cut. Who knows.

Yes, I've wondered about the cycle.  We have a bit of that going on in my family and I wonder how it will play out in the younger generation.