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Off the Payroll

John Yeigh

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 article was Half Wrong.

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wtfwjtd
wtfwjtd
2 years ago

An investment in your daughter’s future happiness is an investment in your future happiness, plain and simple. In life, there are no guarantees, and most investments require some amount of risk. I’m sure you’ve done your homework, and are well aware of this, and as a parent I get it. Best wishes to you and your daughter as you navigate this new chapter of your lives, thank you for sharing.

Langston Holland
Langston Holland
2 years ago

One of the most helpful things about HumbleDollar is the openness of the contributors into their own lives. It’s one thing to armchair quarterback (I’m one of the best) and another to live it (I wish I’d been less generous). I largely followed the lead of my parents as I’m sure is the story for many of us.

When I say I wish I’d been less generous, what I mean is that I would have tried to maintain the present value of gifts to my children by reducing the earlier amounts (I used UTMA’s) while increasing transfers in their retirement years.

My paternal Grandfather was one of 12, literally dirt poor (sharecropper’s son), fought in WWI, came back vowing never to be poor again, went to school and became a lawyer. My Dad was given much at day one, yet worked his butt off as an estate tax lawyer and investor (real estate and marketable securities). Huge death tax rates and love were large motivators to him and his father for giving while living. I saw peers of his respond quite differently to young wealth, living lives of consumption that was a lot of fun to watch.

I tried the consumption path during most of my 20’s and lost my taste for it. Many of my well-heeled peers were not so lucky and it was not fun to watch. At 59, I’m trying to relearn it and I’m not confident I can change. Maybe I can, but I have little hope for you guys that have always lived frugal lives. 🙂

William V. Yount
William V. Yount
2 years ago

I an not so sure that one throw’s awaymoney on rent in all cases of rent v buy. I love the concept of family wealth building and setting a financial foundation to lock in a 25% Savings rate!

zpnhvtuhlg
zpnhvtuhlg
2 years ago

Buying a house in a high cost of living area immediately after graduation strikes me as a terrible idea. New graduates should be maximizing their freedom and flexibility to pursue opportunities, not getting locked down and taking on huge debts. What if she decides she wants to transfer to a different office in 6 months, or has a job opportunity in a different state or country in a year? “Throwing away money on rent” is a tired trope, and if you look at most rent vs. own calculators, renting will come out ahead if you don’t own for at least several years.

Also, let me get this straight: the daughter has a college degree, a great job in a high cost of living area, and her own townhouse, but she won’t be paying for her own Netflix or cell phone, and her parents will be funding her retirement accounts? To each their own, but I’m glad my parents didn’t coddle me like this, even though they had the means to do so.

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