Should you give your adult children cash gifts?

Monica writes in:

Some of your recent articles have touched on an issue that has really troubled me for a while. I have two children, both in college. The oldest one is starting her senior and is likely heading to graduate school, while the younger is about to be a freshman.

Each month, I’ve put $500 in a checking account for my daughter’s use, so that she doesn’t have to work while at college and can focus on her studies. I plan on doing the same for my son.

Is this the right thing to be doing? What about when they graduate and are out on their own? When should I stop giving them money?

There really isn’t a “yes” or “no” answer to this question. Most of the time, I would lean toward not giving stipends to my children, but that’s far from a hard stance.

The biggest factor of all when thinking about whether to give a stipend to your children is their personality and success. To put it simply, are they in a position where they would be able to thrive without the stipend or putting themselves into that position? Are they actively advancing a career? Or are they not pushing themselves and relying on your stipend to maintain their standard of living?

I would be much more likely to give a living stipend to a child who is clearly working toward a situation where they don’t need that stipend.

So, for example, I would be willing to give a stipend to a college student who was demonstrating that they were building up a career for themselves. Are they getting solid grades? Are they engaged in extracurricular activities? Are they trying for and participating in internships? If they aren’t doing these things, then I would expect that they would have a job and wouldn’t need a stipend.

For people who have graduated from college, the situation becomes a bit less clear.

If you give someone a stipend, it becomes very easy for that person to treat the stipend as part of their income and inflate their lifestyle accordingly. For example, if you give someone $500 a month, they might use that to make their mortgage payment, making it possible for them to save up for a $6,000 vacation that summer that they wouldn’t have taken otherwise. That $500 isn’t really going toward the mortgage. It’s going toward the vacation.

While that example is sustainable if a person removes the vacation, many people take it even further and do things like take on more debt for more purchases, leaving them with a debt load that’s unsustainable without the stipend to help take care of the payments. If your stipend is putting the recipient into such an unsustainable situation, you’re actually doing them more harm than good.

This is where character comes into the equation, and for me, it makes all the difference. You have to be able to trust that your children are using the stipend in a positive manner.

What are some examples of what I mean? A person might use their stipend to make an extra payment on their student loan or their mortgage. They might use it to save for a down payment. They might use it to save for their next car to avoid the costs involved in an auto loan. They’re using it to save up for the foundation of a small business.

In each case, they’re living their life just as they would without the stipend. They’re merely using the stipend to accelerate improvements in their financial state.

To put it simply, rather than giving my children a stipend, I’d make a deal with them. Every month that they make their full mortgage payment, I’ll make an extra $500 payment on their mortgage, for example. Every $500 they save for their down payment, I’ll kick in $500. For every $500 out of their paycheck that they put into their 401(k), I’ll give them $500 to make up for the smaller paycheck.

In other words, I’d use the stipend to encourage good financial behavior. If my children naturally make good financial choices, this would be a bonus for them. If they don’t naturally make good choices, this might be a big enough carrot to cause them to change their behavior.

In any case, the stipend wouldn’t directly lead to worse financial choices. Yes, it’s true that they might be able to take out a home equity loan or something like that, but there is no way to give someone a stipend or a financial gift that eliminates such a possibility. The best you can do is use your stipend to point them in a sensible direction.

What about a child that’s going through hard times? I’d be willing to hand them a stipend if they’re showing me that they’re trying to escape from that hard situation. Depending on the situation, it might involve a job search or rehab or something else. People can take actions to solve the difficulties of their situation. If they’re not taking those actions, then they shouldn’t have a stipend to cover up the consequences of not taking those actions.

Always remember that you’re a parent, not a buddy, and that the most valuable thing you can give to your child is developing their ability to succeed in life for themselves. A stipend can go hand in hand with those things.