The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: blackomen on July 16, 2014, 11:58:37 AM
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What's the most mustachian thing to do if you have parents who offer to pay for things like your wedding, car, house, etc. when you can afford these things on your own by being frugal? I guess I'm kinda lucky to be receiving financial support for these things although it's very common in Asian cultures than Western cultures. I've tried refusing their offer or only using spending the part of the money I need and returning the remaining part.
Examples:
1) My fiancee and I are planning our wedding with a maximum budget of $15,000. We initially assume we won't be receiving any financial support. Since my finacee is in grad school, they are offering her up to $5000 in support. My parents offer another $10,000. We're still sticking with our original budget, and I informed my parents that we might not need to spend the entire $10,000 and will be giving some back (and they staunchly refuse it.)
2) I'm still driving the '99 Honda Civic I got as a gift for my 16th birthday (when it was bought brand new) and my parents want to give another $10,000 to spend on a new car (as a wedding gift.) I tell them I'm fine with my current car (only 180K miles, great gas mileage, low cost of insurance) but they find it ridiculous that I'm still driving it. I tell them that if I needed to replace the car, I'll probably spend about $7000 max on a used car and return the remaining $3,000.
3) They're offering money for a new house (no specific amount disclosed) in a few years after they retire because they want to spend time with us and our current house is (in their opinion) unacceptably small (because I choose it for the relatively minuscule costs including mortgage payment.)
My parents have about $0.5 - 1 million saved for retirement next year.
I have a special dilemma with #3 since my future wife and I cannot afford (in our Mustachian budgets) the mortgage payment for a large house that my parents would consider "acceptable" vs. the Mustachain condo we currently live in. In that case, I would think it's fine to take the parents' financial support for the downpayment for a larger house provided that the mortgage payment will be reduced to an acceptable range since they'll be living there for months at a time anyways (but what do you think?)
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I've found that money unusually come with strings. When I worked they paid me and in return I had to show up in a time and place of their choosing and do what they wanted me to do. That was pretty straightforward.
With family it can be more complicated. They pay for a wedding and may want to strongly influence the guest list or select the venue/menu/flowers/minister, etc. Or maybe they want you to take care of them in their old age. You're seeing the strings clearly with the mortgage offer. They will help with buying a house but in return they want to determine the type of house you buy. Are the strings (explicit or hidden) worth it? Well, it wouldn't be to me. But you need to decide for yourself. Different cultures have different expectations.
I would suggest that you read The Millionaire Next Door. One of his chapters is about parents giving regular money to grown children. He found that the children saved LESS than others without parental support. Hey, why save when Mom and Dad are there.
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I think the answer depends a lot on the "strings" attached to the money. It sounds like there are some overtly stated expectations for how the money is spent (your house is unacceptably small to them) but perhaps other money is more freely given? I'd turn down money that is given in order to manipulate your behavior (like buying a bigger house than you want).
From the other side of the fence, I have two grown daughters who are fully launched professionals...both with graduate degrees, no student debt and no need of financial assistance from us. They will both inherit significant assets from us someday so we chose to "gift" them most years with amounts that fall below taxable levels. I have no idea if the money is spent, saved or donated and don't consider it any of my business.
Perhaps your/her parents are trying to just share the wealth with you? You give a broad range of what you think your parents retirement assets are but perhaps it is higher than that. Just a thought about parental rationales but I'd definitely refuse money with conditions.
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You have said a few things that stick out to me in this post.
I'm not going to pretend to be an expert, but I know in Asian cultures parental approval is a big deal. However, at the end of the day you are independent from them. For the wedding and the car, I'd accept the funds and save whatever is left over. You should be able to invest it or maybe put it towards the future house. Which brings me to the future house issue.
Getting a larger house that may be a stretch for you financially is a risky proposition. Not just because of the larger mortgage, but because you have to run the place too. Higher insurance, higher utilities etc.
At the end of the day, the housing decision is between you and your spouse, not your and your parents. They may not be "happy" with your choices, but if something doesn't pan out it's you and your wife that will suffer, not your parents. Knock on wood you and your spouse will be together longer than you and your parents.
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You guys are fast - I'll second the yes to wedding / car, provided the attached strings are not too much. Be very weary of buying too much house - even with significant help from your parents this could be a big problem.
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I don't see a problem with accepting the first two gifts.
But for the 3rd: A larger house comes with more than just a mortgage expense. There's property taxes, utilities, plus the extra cost of having them stay with you for months. It all seems a bit iffy for your financial health to buy a house that is beyond your financial means to support, even if they give enough of a downpayment to bring the mortgage payment down.
When you are ready to purchase a larger home, then accept the gift (or tell them to save it for grandkids' college, if there are any). But don't let the gift convince you to buy a larger home before you're ready.
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I would certainly take the money for the wedding and car, as long as you are sure there are no strings attached.
Here's my issue, it doesn't sound like you're parents have enough saved up for retirement that they can just be handing out cash. Having $1M saved for retirement means a withdrawal of just $40,000 per year. Do they live such a frugal life style that they can afford you give you $10,000 each for a car and wedding?
I honestly feel like I'm in this position with my mom...I know her retirement savings are small and yet she's always helping out my older brother and sister when they need it. She also has paid for a couple of vacations with my wife and I (we wouldn't have gone with if we had to pay, but she really wanted to take us). Just from those vacations alone, I feel like she's going to want us to take her on vacation when she's older. She talks about retiring in 9-10 years but other than a small contribution to her 401k, hasn't been saving. I'm very afraid she's going to be asking for support in retirement. So even if I needed money for anything (I shouldn't), I would be afraid to ask her because I think she would turn around and ask for something in return later on. Thankfully, she's helped my brother and sister out so much that I can tell them they have to support her.
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I'd ask for the money with no strings. We got $10k from both sides and spent about $15k on wedding including a monthlong honeymoon traveling in SE Asia. The rest we saved and we just bought a house with our savings. The extra money helped but there were no strings on how we used the money. I think that's important.
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They want to spend time with you during their retirement. But the size of your place makes them feel a little bad about visiting a lot. That's completely understandable.
You live in a condo, right? Next time one of the other units in the area goes up for sale, email them the listing. They can buy a second home right on your block and visit as much as they want without feeling that they are imposing on your space.
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If you are considering accepting their help in buying a house, I would second the cautions that others here have mentioned in that you don't want to buy more home than you are comfortable getting. In addition to higher mortgages, taxes, utilities, and maintenance, there is the psychological pull of keeping up with your neighbors. Food for thought. If I were to buy a place and my parents offer assistance, I would instead look for places that I like and want to get on my own, that way any assistance is gravy in paying down the balance.
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In my personal experience and observation, when people give you money, there are always strings attached. If you don't mind the strings (and I know some people don't), then take it. If you do mind the strings, then never take the money. If it was me, my response in the past has been "Thank you for that generous offer. I really appreciate it since I know how much you care about me. But, I'm a responsible adult, and responsible adults pay their own way in the world". I've found that phrasing lets them know I appreciate the offer, while also preventing them from turning the conversation around. If they continue to offer, then I tell them that I'm sorry that they don't think I'm responsible, but will work to show that in the future, and the response has always been "We think you are very responsible". Ergo, I don't need the money.
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I have no solid advice, just my own experience. Take from it what you wish.
When my husband and I were planning our wedding we assumed we were paying for it all ourselves. We set a $5,000 budget for a pretty nice event. Once we had everything nailed down my parents swooped in and said they were paying for it all. I accepted, and thankfully there were no strings - I already had everything the way I wanted, and I never saw the money because it went from my folks to the venue/caterer/florist/dress shop. If I remember correctly my husband's mother had set aside a large sum for his someday wedding and insisted we spend it on a bedroom set since the wedding costs were covered. We now have the nicest bedroom set I've ever owned, plus a love-seat to bring the total up to the amount she had given us.
When we were house shopping my parents had just received an inheritance. They gave me a big chunk toward the down payment saying that the money wouldn't really help them at that point in life, but they remembered how much it would have helped when they were my age. It was a HUGE help and got us out of the fixer-uppers and the sketchy neighborhoods into the really nice place we have now. That was 10 years ago, and I'm on much better financial footing. Last summer I gave the inheritance money back plus interest because I was never quite comfortable with it. They paid off the mortgage on their second home and my dad retired early (at 58) last week.
Examples of money given with no strings attached, except the ones I added.
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Disclaimer: I'm Asian. My dad is currently staying with us in our 2 bedroom apt, helping us care for our 1 year old, and doing our chores for free for 3 months--I'm so so grateful. This is NOT what most people want to do in their retirement in Western cultures. My mom did the same for us for 10 months, but is now caring for my grandparents.
We have other relatives visiting this week, and my dad is sleeping in the mostly un-finished basement (not our choice--he refused to go any other way). My parents paid full college tuition for me and my siblings. They were going through some cash flow issues when we bought our first property, but made us a big loan for the down payment on the second--the first became a full investment property and we repaid them very quickly. They are incredibly proud of me, and would not have loaned us the money if they didn't think we were decent person. My dad is now offering to pay for renovations to build out a patio for us--he thinks it will increase the value of our property, and it actually might.
Although my parents are FI and do not expect me to support them financially for their retirement, I know that I would not hesitate to provide anything for them if they ever needed it. I have a much easier relationship with my parents than some of my friends who are expected to be their parents retirement fund. My husband's father has also made us some generous gifts, and though we never needed them, we've just rolled the gifts into our financial plan; and if it ever became a sticking point, we could easily transfer the money back and say, no thank you, not if there are any strings attached.
I guess my point here is that I have no issues with gifts from close family. About #3, is it possible that your parents don't realize that you are being intentional about the small house or perhaps worried that you are picking a small place because of the cost? They might be saying, we'll give you the money, don't feel bad accepting it because we'll get to stay there when we come and visit. And don't worry about us, we have money in the bank for our retirement (though off-topic it depends on their age and SS on whether they have enough).
One more thing... all the Asian parents I know seem to think that property is a very good investment, especially in cities. I don't fully get it, but they all seem to be encouraging their kids to get property early in life for future capital appreciation, and not thinking as much about taxes/mortgage/maintenance... they might be thinking small gift now, grows to a bigger gift later.
If your parents are like anything like mine, they would much rather give you cash than buy your plane ticket to go overseas, give you hundred dollar gifts at the holidays, or send you a gift card in the mail.
So yeah, that's me not stereotyping Asian parents at all ;)
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Ha! My parents gave me a substantial wedding gift "to buy furniture for your new house, not to fund your retirement." I tried to explain to them how money is fungible but they would have none of it. Anyways, I still cashed the check and will surely spend some of it on furniture.
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If they absolutely insist on giving you money (at least for the first two items), then I would personally accept it and lock it away immediately in savings so that it doesn't seem like extra money to spend. Hopefully, that would prevent it from affecting your savings rate. Then, if they decide to attach strings (i.e. guest list, etc.) you can always say no thank you and return the money. The house is a little trickier. I would probably still say no to that one.
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Disclaimer: I'm Asian. My dad is currently staying with us in our 2 bedroom apt, helping us care for our 1 year old, and doing our chores for free for 3 months--I'm so so grateful. This is NOT what most people want to do in their retirement in Western cultures. My mom did the same for us for 10 months, but is now caring for my grandparents.
We have other relatives visiting this week, and my dad is sleeping in the mostly un-finished basement (not our choice--he refused to go any other way). My parents paid full college tuition for me and my siblings. They were going through some cash flow issues when we bought our first property, but made us a big loan for the down payment on the second--the first became a full investment property and we repaid them very quickly. They are incredibly proud of me, and would not have loaned us the money if they didn't think we were decent person. My dad is now offering to pay for renovations to build out a patio for us--he thinks it will increase the value of our property, and it actually might.
Although my parents are FI and do not expect me to support them financially for their retirement, I know that I would not hesitate to provide anything for them if they ever needed it. I have a much easier relationship with my parents than some of my friends who are expected to be their parents retirement fund. My husband's father has also made us some generous gifts, and though we never needed them, we've just rolled the gifts into our financial plan; and if it ever became a sticking point, we could easily transfer the money back and say, no thank you, not if there are any strings attached.
I guess my point here is that I have no issues with gifts from close family. About #3, is it possible that your parents don't realize that you are being intentional about the small house or perhaps worried that you are picking a small place because of the cost? They might be saying, we'll give you the money, don't feel bad accepting it because we'll get to stay there when we come and visit. And don't worry about us, we have money in the bank for our retirement (though off-topic it depends on their age and SS on whether they have enough).
One more thing... all the Asian parents I know seem to think that property is a very good investment, especially in cities. I don't fully get it, but they all seem to be encouraging their kids to get property early in life for future capital appreciation, and not thinking as much about taxes/mortgage/maintenance... they might be thinking small gift now, grows to a bigger gift later.
If your parents are like anything like mine, they would much rather give you cash than buy your plane ticket to go overseas, give you hundred dollar gifts at the holidays, or send you a gift card in the mail.
So yeah, that's me not stereotyping Asian parents at all ;)
I don't mind them visiting for even months at a time when they've retired.. after all, I would not shell out for an unnecessarily large house if they don't demand and pay for it. But I would make it clear to them that the purchase is made solely for their best interests and we would not waste money on a larger house if they aren't the ones funding AND using it. And if the final upkeep costs (mortgage + maintenance + utilities + taxes + etc.) are reasonable, we might still consider it.
As for taking care of parents in retirement (as any good Asian son is expected to do), I'm willing to offer common sense guidance especially regarding their health and financial planning. I have absolutely no intentions of abandoning FI to bail them out if they grossly neglect their health or rack up 2 million dollars in debt, but I don't see it as a burden to do what I can reasonably do to prevent such catastropies. And if the relatively small sums of money (for the wedding and car) end up with significant strings attached, they'll be returned in real (adjusted for inflation) dollars.. which is more than doable with Mustachian money management.