Many parents want to help with everything in your life – it’s just part of being a parent. Some parents help with babysitting grandkids, others help with home repair, but many help with money.
As a kid, I loved getting money from my parents because I could spend it on whatever I wanted. Even as an adult, I enjoy getting money from them because it lets me buy things I wouldn’t normally get. But under what conditions should you accept money from your parents? There are some positives and negatives to accepting money from your parents.
When Accepting Money is a Positive
Accepting money from your parents can be a positive in many circumstances. Gifts, like birthdays and holidays, are a prime example of when it is acceptable for receive money from your parents. And with those gifts, it is perfectly acceptable to purchase something outside the norm, since getting money as a gift should be treated as an equivalent to getting clothes, electronics, or other knickknacks as a gift.
Another time it may be acceptable to get money from your parents is for estate planning purposes. The IRS currently has set the maximum allow gift at $13,000 without being subject to tax. So, if your parents are older and are worried about paying estate taxes, a common practice is to gift out money to their children now to lower the total value of their estate.
So if your parents are married, they can actually gift up to $26,000 per year per person. This money should be treated differently than a standard gift, however. It should be considered more like an inheritance, and saved accordingly. These types of lumps sums shouldn’t be treated like birthday gifts and blown on something fun and frivolous.
When You Shouldn’t Be Accepting Money
There are times when it is inappropriate to accept money from your parents. Parents always mean well, and usually want to help their children and support their children’s best interests. However, some parents take this to the extreme and try to bail their children out of every circumstance they find themselves in.
A prime example of this is parents giving their children money to pay their basic bills. If you’re out of college, you need to pay for your own expenses and not be borrowing money from the bank of mom and dad. Some parents, however, will just intrude and give the money if they believe their child needs it. If this is the case, you shouldn’t accept the money as it will continue to perpetuate poor financial choices and not allow you to be self-sufficient monetarily.
Another area where you should not be accepting money is when you are looking to use it to buy something you can’t afford. A prime example of this is using a gift to buy the “next level up” of car or house. Instead of buying a used $10,000 car, you accept money from your parents to buy a $20,000 car. This just sets up a bad precedent for future purchases, and you could get into a feeling of entitlement to buy things you can’t actually afford.
The Grey Area of Parental Money
A grey area of accepting parental money comes in the form of accepting monetary gifts for your children. A example of this is a parent offering to pay for a grandchild’s tuition so that the child can go to a better (usually private) school. This is a grey area because the parents themselves can’t afford it but want the best education possible for their child. However, it could setup a precedent for the grandchild because they will become accustomed to something their parents can’t afford.
I don’t have an easy answer to this one, because a good education is valuable, but so is a solid understanding of the value of money. As such, really think hard about the potential implications of sending your child to a school you can’t afford using someone else’s money.
Readers, what are your thoughts on accepting money from parents? Good, bad, ugly? What about the grey area mentioned at the end? Do you think that accepting money to send your child to a private school is a positive or negative?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.