The Worst Financial Gifts to Give Your Kids

As a rule of thumb, parents love their kids and would do anything for them. But, due to a scarcity of financial literacy, parents using fantastic intentions end up hurting their children. Below are some of the ways they do this.

# 1 A Car

Now, I’m certain there are people who believe it is a bad concept to offer your child a vehicle as it is going to spoil them. That’s not exactly what I’m talking about. Should you truly wish to spoil themknock yourself out (really we’ll get to this under # 6).

What I am talking about is providing your child a car that isn’t paid for. Yea, some people do that. Can you believe it? They go down to the automobile, put down some $300 down payment, sign-up for some payments and then give you the car. Together with the obligation to create the payments! Uhhh…Thank you, mother. I guess it could be worse. They could have signed up you for a lease.

# 2 Whole Life Insurance

Another frequent situation is a parent who bought their child a entire life insurance policy in the birth. It would stand to reason that if you’re purchasing infant food and life insurance from the identical company, one of those two probably isn’t an excellent product.

Despite that, I keep running into people in their 20s and 30s who’ve just been given a whole life insurance policy and asked to take on the obligations. Their parents are making monthly payments on these for 2-3 years, however the surrender value is merely a four-figure sum at this point and the child is essentially being asked to cover a 2 or 3 figure sum every month for the rest of their lifetime.

It wasn’t a fantastic policy to begin with. It doesn’t address some financial requirement they really have (because the face value is usually something like $20K). And today they have no idea what to do with it, so they just begin making the payments, too!

Incidentally, things they need to do is counter it, put the money toward their student loans, so thank their parents for their kind gift, and neverrun the numbers on how much that gift could have been had it been invested aggressively in a 529.

# 3 A Timeshare

This ’another one like the car. What a lot of people don’t realize about timeshares is the buy price is actually kind of like a down payment and the yearly fee is a lot like the continuing payments. It isn’t unusual for its yearly use fee to become 40% of the original purchase price, particularly after a couple of years of inflation. The parents believe they’re providing the kids an advantage, however, in fact they’re giving them a liability.

Now the kids feel as though they need to holiday at that place (maybe even with the parents). They could ’t afford the yearly fees. They could ’t sell the stupid thing for any fair cost (and maybe can’t even give it away). And they are feeling guilty about the entire thing. Thanks, father!

# 4 Co-Sign on a Home

A great deal of parents give to cosign on a house. That’s very generous of them, though probably not that clever since the kids can totally walk away from the home and the parents will be on the hook. I don’t believe it’s a great idea. In case the child wants a co-signer, that’s a sign they’re not financially ready to be purchasing the house in the first place. Therefore that the parent is really allowing the child to pick up a liability and live beyond her means.

# 5 Parent PLUS Loans

I love that parents want to help their children pay for college. I believe it’so amazing. Unless they’re borrowing to do it. I believe if someone must borrow to cover an education, it should be the pupil. There are numerous reasons for this.

In the event the student dies or is permanently disabled, then the debt goes away.
More importantly, the pupil is going to be careful with her money/debt compared to her parents’ money/debt.
Parent PLUS loans are often removed after the child has maximized what they can borrow. So this means that the family is REALLY living beyond their means in terms of an education.
To make matters worse, most parents expect their kids to repay the Parent PLUS loans, so even though they do not legally need to achieve that. Giving your child a liability is not doing them a favor. You need to do your own 17-year-old a prefer? Help them choose a college that the family can manage .

# 6 Champagne Taste on a Beer Budget

An even larger liability is a child who doesn’t have any idea how to make, save, budget, and invest wisely. Stanley and Danko reported the severe adverse effects of “economic outpatient care” within their classic novel The Millionaire Next Door.

If your children leave your home with the idea that many Americans go to private school, push Audis (or at least a Tesla 3), store at Whole Foods, and also holiday in Fiji, you’ve done them a large disservice. Perhaps they’ll earn enough to maintain the lifestyle they have gotten accustomed to, however I would anticipate a large proportion of the children of my readers will make greater than their parents did on a inflation-adjusted basis.

# 7 Parental Financial Insecurity

In canyoneering and in life, it is easier to assist from above

Each one the above are terrible gifts to provide your children. But, I saved the worst person for last. The majority of the aforementioned problems are solvable, some pretty damn readily (market the auto, concede the entire life policy, etc). That’s not true for this particular one.

I run into docs all of the time who are flummoxed at how to care for their parent who will ’t restrain their spending, who has no assets, who only got scammed, who would like to move in together, who requests cash from themor who is in these terrible financial shape their child lies awake at night worrying about them.

Among the most wonderful presents that our parents have given us is their own financial security. They’re a boon on our own financial lives instead of a drag. Many parents do anything to help their children, but there is a reason why you need to prioritize retirement saving for college.

Likewise, you need to prioritize your own financial safety at least equal to that of your children. Don’t put that weight on your children, even if it is typical in your culture. It is far easier to lift someone from over to push them from under. Help your children from a place of strength.

What do you believe? Are there some other horrible monetary gifts which parents pass along with their kids? Comment below!

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