I’ve never really understood the obsession with inheritances.
From the older generation’s perspective, I suppose they’re fine enough. If you run out of life before you run out of money, you might as well pass that cash onto your kids, cat, favorite charity, or new stripper girlfriend. Do whatever you want; it’s your money.
Where I start to scratch my head is when the younger generation starts expecting something from their parents or grandparents. We all know those people who are just counting the days until grandpa kicks it, ready to redo the house or buy a vacation home with the proceeds. Grandpa knows such expectations exist, so he intentionally lives like a pauper in hopes the money lasts. This isn’t so bad, because I don’t know many 80-year olds who spend a lot of time doing much of anything besides sleeping, drooling on themselves, and yelling at teenagers on their lawn.
As far as I’m concerned, people should run their lives pretty simply when it comes to potential inheritances. They should account for them never coming, and make sure to tell their older relatives that. That’s not saying you shouldn’t accept an inheritance, because saying no to free money is just plain dumb. Just don’t have any expectation of it.
I realize that’s much easier to say when you’re in a comfortable spot, which means you’ve got to do everything you can to get in such a position. Don’t be that kid who needs a cash injection from Mom and Dad to be able to retire — mostly because at that point you’re not a damn kid anymore.
I know I’ll never be able to talk 90% of people out of leaving inheritances for their kids and grandkids. Chances are if you’re here, you’ve got a bit of money. So instead of leaving it all when you kick it, can I make another suggestion?
Allow me to put this next point in a very pretty obviously professionally done graph. Here’s the relationship between somebody’s age and their need of someone else’s money.
Think for a second about the average person’s life. They start out a pooping, vomiting mess, eventually learning to care for themselves. Then comes puberty, touching themselves five times a day, young adulthood, and so on. By the time they get much past 30, they’re usually pretty self-sufficient. Some people might need a little help after that say buying a house, but that’s about it.
By the time most people hit middle age, they’re usually able to support themselves. Many might not have much in retirement savings or other investments, but they’re not dependent on someone else to clothe and feed them.
And yet, that’s the time when most people start receiving inheritances. How exactly does that make sense?
Which is why I suggest a more staggered approach for those of you who plan to leave some cash for junior.
Your kids will need more money when they’re younger, to pay for things like college, their first apartment, their first house, and maybe a wedding. Once those things are paid for, most people end up being on good enough financial footing to be able to handle everything else on their own.
Some parents help out their kids when they’re younger. But here in the PF-o-world, we seem to be against it. I’ve taken the official position that if you can’t pay for it yourself, maybe you shouldn’t get married. But then again, I might not be the right guy to ask considering how I think pretty much all parties are stupid.
Other people think gifted down payments are helping to prop up our already over-extended housing market. And I know more than a few folks who think paying for your own college education is a rite of passage.
The issue with this whole thing becomes at what point is parental help just help and at what point does it become expected parental welfare? That is, admittedly, a tough nut to crack.
Perhaps parents could get around that by setting clear expectations. Junior has say $30,000 to put towards his college education, $5,000 to put towards his wedding, and $10,000 to put towards a down payment on a condo or starter home. Parents could then put age restrictions on each gift (no buying a place until you hit 25, for instance) or make the kid justify the decision. Make him do some terrible Powerpoint or something.
This isn’t perfect, I realize. One reason why many parents don’t give money to their newly-adult kids is because they don’t have much. That makes sense. After all, something like 95% of Warren Buffett’s net worth was earned after he turned 50. That’s the beauty of compound interest.
Parents have to take care of themselves first. Once they’re pretty sure that’s taken care of, perhaps it’s time to loosen the purse strings to make the kids’ life a little easier. They’ll appreciate it more in their 20s than their 50s, that’s for sure.