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May 11, 2010

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My husband's parents told us when he graduated (he was 21) that he had about $20k left in his college fund that was all his/ours...we were getting married in 6 months so they told us while we were wedding planning. They wanted us to have the option to spend it on the wedding if we wanted (we didn't).

We left it where it was for a couple of years before cashing it in as most of the 20% downpayment on our house. I think a parent knows how responsible their child is...the kids above seem like they were taught to save, so they probably won't go money crazy. Well, at least I hope they don't...

I think it would make a great down-payment on their first house. Hopefully they've taught them to be better with money than to blow it all, but you never know. Great ideas.

I agree about waiting until age 30. I've a friend whose grandparents (wisely) set up a trust for he and his sister would not inherit until they reached age 30. He was a bit miffed as he reached 21 that the trust wasn't his at that time. But by the the time he reached 30 he was glad for his grandparents' wisdom, telling me he would have blown through the trust at age 21 in no time. But at the wise old age of 30, what did he do? Put the money on a down payment on a home.

Yes, waiting until the child has had some time to mature and get through a few years of adulthood is the right way to go, in my opinion.

Nice gift if you can swing it. Of course, this is something you should do ONLY if you're fully funding your retirement, have proper life insurance, the kid has no college debt, etc.

The biggest gift you can give your kids financially is to have your own house in order so they can use their funds to build their own dreams rather than worry about supporting you.

My parents saved and lived within their means and gave us this gift. My in-laws did not, and I often worry that they will wind up on our doorstep someday in need of money, or worse, shelter.

"he will be remembered as: the guy who spent $25k in one night!"
Hahahaha!

As to the question whether the $25k will be safe with a twenty-something kid, remember this is not any kid we're talking about. It's a kid that has diligently saved for 22 years. Also, I think some money is easier spent than other: I could see myself squander money won in the lottery, but not money that took me decades of work and sweat to collect.

Last point: the real gift here is not the $25k. It's the save-and-get-rich attitude.

the parents are very wise and the kids are very extremely stupid. that cash could have helped them in in so many ways. I guess that is what is called being 22.

I agree with Bob---it's probably better for your kids if you make sure your retirement is taken care of. Because why would any 20-something kid need $25K if their college is paid for?

Yeah, maybe they'll buy a nicer car. Or rent a nicer apartment. Or maybe they'll blow it all on a stupidly expensive wedding. Not sure any of these things are really very valuable. They would be perfectly fine with just a cheap car, apt, wedding, etc.

And why would a 20 something person want to buy and be tied to a house? Unless they're married and settled down that young, which is hopefully not true. Kids that age should travel and enjoy being free, maybe move around the country to grow and follow their career. Why would they want a house with a lawn they have to mow every week?

If you want to help their kids with a down payment, go ahead and do so when they're at the point of needing to buy a house. If you want your kids to inherit your money, hang onto it and invest it, and set up a trust/will. Not sure why giving cash as a lump sum would be preferable.

Handouts are not a good thing

The last point is entirely plausible though. :D

Well, for parents who have worked hard and taught their kids to save, it's also entirely plausible that these grown children will manage that amount well.

$25k is a nice chunk of change, but... it's really more like a drop in the bucket in the grand scheme of things. I suspect that they would realize that as well.

Every situation is different so it really depends on the person.

I look back upon the first few years after college and I am glad I didn’t have 20k given to me. Part of the fun of those years were about making more than you’d ever made, and still feeling broke all the time. Everyone was in a similar financial situation/the same boat. Had there been 20k under my control I fear that I would have missed out on those wonderful years right after college. All this aside, being given a slight head start with a little money can make life so much easier and allow one to make choices that might not have been options without the money.

Anon- Come on. I get handouts everyday- most are not monetary. Help/handouts from others have put me where I am today. Handouts can we a wonderful thing that can change one’s path in life (and I agree, not always for the better).

My parents gave me $10,000 upon graduation. I invested it in mutual funds.

They had saved it for my college fund and hadn't needed to spend it on me because I always had a well-paying job during college.

This is such a great idea, I wish my parents had done something like this for me. I agree with you that the key to this working is TIME. The longer you allow the funds to grow, the better compounding interest will work. If I were given $25,000 after graduation, I would pay off loans, save some, and maayyybbeee spend some. However, if I graduated debt free, I would save most of it, invest some, spend some, and maybe use some for something I needed at the time. For me, I needed a new car when I graduated, so I would use some for that.

I also agree with what a few others had to say above concerning only doing this IF you can swing it. A book I just finished reading stressed about how it's admirable to save for your children, but still make sure you pay yourself first. Nobody is going to pay for YOU to retire... unless your son plays a professional sport:)

Concojones hit the nail on the head: These kids aren't going to blow the money they've watched building up their entire lives. They have learned from an early age how long it takes to save money, how to resist the temptation to spend rather than to save. Handing the money over to them isn't a test they can pass or fail - they've already passed.

But these kids weren't "given" 25K...the parents had matched every dollar the children saved for 22 years, and I'm sure the children knew that family gifts were being put towards their savings. You also mentioned that it had been made clear to the children how the money grew over time, so I think that the children would have been very fluent in financial matters, and quite unlikely to blow 25K.

I can absolutely guarantee that if I had been given 25K at age 22 I would have done nothing more than save it. At MOST I might have spent about 2K on a month-long backpacking holiday...but I would have saved the rest. (In fact, I graduated college with about 18K to my name and spent $1K on a trip to Thailand...)

Everything depends on the situation.

My parents pretty much did this for me - the money was originally saved to be used for college in case they couldn't help out otherwise. I did not contribute to it as I had my own savings account from a young age. As it turned out, the fund was untouched when I graduated. I'm now in grad school and transfer money from the fund each year to fund my Roth IRA. At this point, I would never consider asking my parents for financial help or contributions to a wedding or such - they have already given me this gift for me to manage.

On the other hand - my younger, less-financially-responsible sister knows that her fund exists (she has also finished college) but my parents have not told her how to access it...

Agreed--everything depends on the situation.

As a 20 year old working full time and going to school full time and VERY interested in handling my finances responsibly I would love it and be very responsible with $25k given to me at graduation. But maybe I'm abnormal.

Very cool idea though.

You're right, Claire - less than half of this money was a gift from the parents. The cash gifts at birth technically belonged to the kids and some of that $25k would be from earned interest. Half of the savings, which is probably the bulk of the balance, was invested by the kids themselves. Just because the account was inaccessible to them, doesn't mean the money was not rightfully theirs. (When I withdraw my money from a CD, I don't consider it a "gift" from the bank because my terms now allow me to access it!) So over the years, the parents probably gave something more like $10,000 in gifted money - which is still wonderful! Despite the semantics, I like the parents' idea.

My husband and I have a goal of saving 1K/year for each of our twin girls. We hope to give this money to them as a present sometime in the future. Our original thoughts were to give it to them at college graduation but we will assess the situation when that time comes (they are only 3!). We hope to instill good financial values in them so by the time they are in their 20's there won't be a question about how they handle money.

i think this is a great idea but only the parents really know if the child is responsible enough at 22 to be given 25k. i got around 15000 when i graduated, a gift from my grandfather, and have funded my IRA and purchased a car with it.

MC, what is wrong with being married and settled in your 20's? You can still travel for pleasure and will be extremely happy to be debt free in your early 30's as opposed to your peers that struggle to take into account a mortgage...

This really isn't too bad of an idea. I would have loved it at graduation but the most useful time would have been when I got married. My wife and I had to save for a while until we had enough of a down payment on a house and it would have been nice for us to start our lives both in a new place, rather than her move into my place.

Either way it honestly doesn't matter when and how much they give them as king as they learn the lesson behind it all. I don't know how many of my friends who had never save a dime blew through money once they got a job....

My parents gave me $10,000 when I was 18, which they had saved from my birth. 18 may seem a bit young but they knew I was able to financially handle it as I had managed to save $8,000 of my own money from part time/summer jobs while at school.I think even if you can't manage to save a huge amount yourself the best thing you can really do is teach your kids financial literacy.

My parents gave me some money (not nearly $25,000) when I got married... which was a good time to do so. However, it may not be as good as post graduation, because getting married is not something everyone does, and I would not want my children to have that kind of expectation.

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