We have two sets of friends who approach this issues in such strikingly opposite ways that their stories really establish the two extreme ends of a spectrum.

Bill and Marge Jones each grew up with little family money, had jobs after school and all summer, and worked their way through college.  They feel this made them tough and independent and they want the same “blessings” for their kids.  So, even though they are quite well off, they basically give their kids nothing beyond the basics of food and shelter, expecting them to earn all their own spending money while they’re young and then either get scholarships or work and take student loans to get through college.  Their kids have become marvelously resourceful and independent, but it took some of them seven or eight years to get through college and there is a certain resentment about the shoestring lifestyle they’ve been forced into.

Pat and Liz Smith also grew up relatively poor and had to make it on their own, but their goal is to make sure their kids don’t have to do the same thing.  They want their children to have all the advantages they didn’t have, so they basically give them everything they need (and a lot of what they don’t) financially and just encourage them to take advantage of every extracurricular opportunity and to do their very best in school.  Thus the Smith kids went to far better (and more expensive) colleges than the Joneses, and they finished sooner and went on to graduate school.  Now that they are out of school, though, they are having some trouble living within their means and learning to live independently from their parents.

The ultimate goal, of course, is to give our children the independence and self-reliance of the Jones kids and the advantages and head start of the Smith kids.  That seems like an almost impossible combination, but we have tried to do it by helping our children earn and save their own money through educational “loans” from our family partnership that allow them to go to the best schools they can get into and progress into their careers and families and homes as rapidly as they want to.  The “loans” carry no interest and are paid back at the discretion and timing of the child.  The point is that they perceive it as their borrowed money and thus value their education more.

Case Study

We concluded long ago that the goal of financial empty-nest parenting should be a balance between advantage – giving assistance, and initiative – and giving independence.  Here is how we tried to convey those conclusions to our LTN children.

            To:        Our Adult Children

            Re:       Financial Issues:  Draft Agreement

            From:    Mom and Dad

There are two parts to this memo.  First, an overview of the principles of financial stewardship or the “Rules for Financial Freedom” which we’ve tried to teach and that we’ve discussed together over the yeas, and second, a summary of our proposal for how we should work in terms of your ability to borrow, invest, and repay.  Please review the whole memo as a proposed financial agreement for our ongoing financial family.

A.      Financial Principles of Stewardships and Perspective

1.   We own nothing.  Everything belongs to God and we are stewards.  Take care of and magnify what you are given by God.

2.       Each of us comes to earth with a mission or “foreordination” of what we should accomplish here.  We must strive to recognize the gifts and opportunities that enable and lead us to our mission.

3.       Money is a tool, much like health or access, valuable for the freedom and opportunities it gives rather than for itself.  Like money, career and occupation are not ends in themselves but the means to the ends of family, relationships, service, and personal growth.

4.       In other words, broadening and contributing (learning and giving) are the goals which are facilitated and enabled by financial resources and freedom.

5.       There is a financial range (which may be different for different people) in which maximum happiness lies.  If our financial and material resources are too small or if they are too large, we lose freedom and thus happiness.

6.       “All battles are won on reserves.”  The biggest opportunities and challenges of your life will depend on whether you have some reserves to draw on – financial and otherwise.

B.         Financial principles of Implementation

1.                   Pray for “enough” and try to understand what that means.  (Ask God to provide and guide you to enough financial resources to meet your mission and to give you the freedom to make life choices on merit rather than on cost, but not so much that your things rob you of your time and your freedom.)

2.                   Practice the 10-20-70 formula (donate the first 10 percent or more of everything you earn to church or charity; invest the next 20 percent; and live on the 70 percent that remains).

3.                   Give something back – of time and money (with the 10 percent or more you give to church) – give something of yourself.  Volunteer in some capacity on a regular basis.

4.                   Establish a formula for your 20 percent saving (only a small part of it in high risk investments; think long-term with no “trading;” have it all in a separate account to be removed only for “absolute emergency or opportunity,” not for “consumable investments” – see #6 below).

5.                   No credit card or consumer debt.  (Have one low-limit credit card on which you pay the entire balance each month to establish credit.  Other than that, use only checks or debit cards and buy no consumables – including cars – on time or on credit.)

6.                   Borrow only for the two “consumable investments” of house and education.  (Both, as you use and enjoy them are virtually guaranteed to provide a financial return that is greater than the interest you have paid.)  On everything else, practice delayed gratification and pay as you go.

C.         Loan Policies

Our “bank,” so called, is legally a Family Limited Partnership which has acquired and saved assets over the years for the primary purpose of providing financial assistance to our children (“Eyrealm” members), particularly for education and first-home purchase.

For undergraduate education, we pay room and board (since we would pay for those items if you continued to live at home).  Entertainment, clothing, and incidental expenses continue to be your responsibility as they have been at home.  Tuition, fees, and books are your responsibility (and your chosen “consumable investment”) but you may borrow from our family fund to cover them beyond what your part-time work and your own savings in your 20 percent investment account will cover.  Your loans (on which you will sign promissory notes) will accrue no interest and will have no repayment schedule.  You will repay it according to your own circumstances and judgments following graduation.

For post-graduate education, all expenses including room and board are your responsibility, but you are able to borrow up to half of the total you need with the same no-interest, flexible payback conditions. The other one-half you must obtain from your own resources or from regular federal or university-supplied student loans.

For first-home purchases, we will provide matching funds on a down payment, putting up an equity amount equal to what you are able to supply personally.  This will not be a loan but an equity investment in proportion to the total cost of the home (i.e., if you purchased a $250,000 home and wanted to make a $50,000 down payment, you would put up $25,000 and we would match it with $25,000 and the $200,000 balance would be your regular first mortgage on which all payments would be your responsibility, along with all upkeep, improvement, and maintenance.  We would own 10 percent of the home and receive 10 percent of the selling price whenever the home was sold.  Your cost of materials for home improvement (not repairs) could be added to the home’s cost, thus reducing our equity percentage.

Repayment of loans is to be both flexible and optional according to circumstances.  We would hope you would feel responsibility to pay back what you can (without extreme sacrifice) according to circumstance and choice of profession.  (The investment bankers among you might be expected to perform a quicker payback than the teachers and social workers.)”

Conclusion and Summary

Every family’s financial situation is different and the case study from one family is never an exact model for another family.  The important thing is to have a plan – a plan developed in consultation with your own children.

Thanks for reading and for being interested in the fascinating challenges (and opportunities) of continuing to be good parents to adult children.  Join us next column when we will present our case study on “Emotional Empty-Nest Parenting.”