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Off the Payroll

John Yeigh  |  January 30, 2019

WHEN OUR daughter landed a great job after her 2018 college graduation, we expected her to soon move off the family payroll. She immediately budgeted to take on all routine living expenses, including housing, food, car and utilities. We did volunteer to cover some smaller expenses, largely in situations where family plans are available, such as cellphones, Netflix, Amazon Prime and AAA. We also kept her on our employer-provided health insurance, which involved no added cost.

Today, a third of millennials still live at home. I get it. Young adults may be seeking a job, continuing college studies, saving for a down payment or wedding, temporarily displaced, or simply lazy or fearful about entering the workforce. Even if they move out, many others receive parental financial help, similar to what we planned for our daughter.

But in our case, parental help turned out to be far larger than we expected.

My daughter’s first big challenge was finding a place to live. In her new city, tiny apartments rent for some $2,000 per month. These apartments were too small to store snow tires, camping gear, skis and other stuff that should now be hers to manage. I also struggled with throwing away $24,000 a year on rent. That’s when I suggested she look into buying.

This was a seismic shift from the original plan. Suddenly, our daughter had to step up and earn an instant PhD in real estate. She quickly learned that buyers get what they pay for—and that location, location, location is everything. Two important criteria were neighborhood safety and resale potential. After all, she might get a job transfer—a frequent occurrence early in a career. After considering many cheaper dumps, our daughter landed on a three-bedroom townhouse with a basement. It struck all of us as a solid value.

Of course, the townhouse cost far more than we ever anticipated and required significant parental assistance with the down payment. In effect, we moved forward part of her inheritance by a few decades. Still, her monthly housing costs, including principal, interest and property taxes, were lower than rent on an apartment, plus she had three times the space and was building home equity. Longer-term family wealth had clearly been improved—but we hadn’t exactly thrown her off the parental payroll. As I now tell friends, my daughter lives in my retirement Porsche.

This wasn’t the only payroll challenge. Our daughter’s company provides a matching contribution to participate in the 401(k) plan and a significant price discount on shares bought through the employee stock ownership plan. Over the past four years, our daughter has also funded a Roth IRA by contributing all summer job and internship earnings.

To make the most of these three plans, our daughter would have to save nearly 25% of her income. The upshot: If the goal was to maximize family wealth, further parental help made sense. The good news is, our daughter has a two-year plan to take over funding of all three programs, so parental help should be temporary. An added benefit: She’s locked into funneling her money into real estate and savings. That means there’s not a whole lot left over for the mall.

John Yeigh is an engineer with an MBA in finance. He recently retired after 40 years in the oil industry, where he helped manage and negotiate the financial details for multi-billion-dollar international projects. John now manages his own portfolio and has a robust network of friends, with whom he likes to discuss and debate financial issues. His previous blog post was Half Wrong.

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