Wedding Woes

It's really not their money, it's yours...divide the money.

Dear Prudence,
In order to teach our young kids about money, when we started giving them an allowance, we had them place 10 percent into investments we managed on their behalf. This has gone well for our older son—better than we could have ever guessed, thanks to some amazingly lucky investments. Our banker has suggested that by the time our son reaches adulthood, the fund could be greater than anything we imagined when we created it. Our problem is what to do about our younger son, who is unlikely to see the same return on his investments. We have unwittingly created a situation of extreme inequality among our kids.

Since my older son is a minor and the account is in my name, I am able to transfer some of the value to our other son’s account. Part of me thinks this is fair, since the investment plan wasn’t initiated by either of our children, so I can’t tell my younger son that his brother deserves the money due to his own wise planning. Our older son had luck and timing on his side, and nothing else. Should I divide the money in the name of equal treatment?

—Money Management

Re: It's really not their money, it's yours...divide the money.

  • OliveOilsMomOliveOilsMom South Jersey
    5000 Comments Sixth Anniversary 500 Love Its 5 Answers
    member

    I think the parents should do a one time transfer to equal out the accounts.  Unless the huge success of the older son's fund continues, I would just do it the one time.  The accounts don't have to be equal at the time they gain access to it, but I think efforts should be made to have them be closer.

    short+sassy
  • levioosalevioosa Southern California
    2500 Comments 500 Love Its Third Anniversary 5 Answers
    member
    I'll be odd man out. My grandparents invested money for my cousins, brother, and I when we were young. While none of them were "poor" investments, some did result in better returns than others. I just cashed out one of them. My mom accidentally gave me my brother's account balance statement along with my own (same investment company, and our names both start with the same letter), and I saw that he had more than I did. No biggie. It happens. My dad also moved a chunk of money from another fund that had been invested for me when I was younger into a high risk account against the financial advisors advice. He lost almost all of what would have probably paid for my education. Was that annoying? Sure, but it's not like I would have had that money on my own. There's no use continually thinking about it. I'm incredibly lucky and privileged to even have had any of this money available to me. 


    image
    STARMOON44ILoveBeachMusicCasadena
  • I like this letter!  It's an interesting conundrum and I can see both sides of the argument.

    I think the parents should compromise, somewhere in-between.  They don't need to split the "windfalls" evenly, but I think they should try to balance things out a bit better since the older son's investment portfolio has done dramatically better.

    My answer would be different if the parents had involved the sons in the investment process, when they were old enough to have understood the basic concepts.  Or if they older son had voluntarily chosen to give MORE than 10% of his allowance.  But they didn't.  It was as the LW said, "luck and timing".

    ---------------------------------------------------------------

    Excuse my novel, this letter is one of my all-time favorite subjects.

    One thing I am eternally grateful that my parents did, is they introduced me to savings accounts at a very early age.  They opened a savings account for me when I was 2 and would deposit any birthday money or whatnot that I got.  Until I was old enough to make those choices myself.  When I was about 5, my mom started showing me the statements.  She used them as a tool to explain the basic concept of interest.

    I was FASCINATED!!!  It was just incredible to me that...just by having my money in a bank account...I got MORE money.  Plus, especially to a 5-year-old, those few dollars of interest every quarter seemed like a LOT.  I decided myself that I wanted to put half my allowance/gift money into my savings account.

    Most importantly, it set some really important concepts about finance and money management into my little, developing mind.

    • Money, by itself, is enough to make more money.
    • The TIME value of money.
    • If I want bigger ticket items, I need to save for them.  But then there is also an opportunity cost.

    Obviously I wasn't using terms like "opportunity cost" in elementary school, lol.  I wish I'd been that much of a genius.  But I understood the concept, even at an early age.  And often ended up not buying the toy I wanted...even after I'd saved enough for it.  Because less money in my savings account, was a long time of earning less interest.

    Fast forwarding.  I had saved up, myself, a decent nest egg for college by starting a p/t job at 15 and socking most of my earnings away.  I also worked p/t all through college and tried to touch as little of it as I could.  When I was about one year from graduating, I realized I was going to have about $9K left over.  I spoke to the financial advisor at my bank about investing in mutual funds.  Didn't need to take out any student loans either, but that was more due to going to a state school.

    Talk about luck and timing!  He suggested divvying my money over 3 funds (lower, medium, higher risk) with a large percentage in the higher risk, because of my youth.  Within about 6 months, the tech boom first hit the NYSE.  I was getting 20+% returns every year.  My best year was 26%.  This was me, "Holy crap!  This is SO easy!  Why isn't everybody doing this?"  LMAO.  What can I say?  I was still young and a little naïve.  But I rode that gravy train for a nice few years and tripled my money.

    Summary:  Those are now and have always been key financial concepts for me that I live and breathe and plan around.  I'm certainly much more sophisticated and knowledgeable now about financial matters, lol!  But at my core, I'm still that same little girl who is fascinated with the idea of making her money grow for her. 

    Wedding Countdown Ticker
    charlotte989875OliveOilsMomSP29OurWildKingdom
  • *Barbie**Barbie*
    Knottie Warrior 5000 Comments 500 Love Its Name Dropper
    member
    edited September 28
    Do they have the sons monitoring or engaged with the accounts? did the sons make the investment decisions (i.e. choose the funds, timing)? 

    I probably wouldn't divide the money, but potentially give younger son some additional support. Assuming the sons take possession of the accounts at a specific age (18, 21, 25, etc.) - with the intended use of spending the money for college, a home, etc. the older son will likely need his money sooner, and the younger still has time to invest and build interest. 

    Rather than robbing Peter to pay Paul, I'd see if I could help Paul increase his contributions. 

    Either way, they're giving their sons a good start and helping to teach them the value and risk in investing. 

    I think it would be kind of shitty to take money out of the older son's account for the sake of "fairness." Why invest in separate accounts if you're just planning to gift the kids the same amount?
    charlotte989875STARMOON44SP29lovesclimbing
  • Yeah I don't think I'd split the money. I'd want to add funds to raise Younger Son's account to a similar level (if financially possible) as Older Son's so that when they take possession it's fair. 
    STARMOON44
  • CharmedPamCharmedPam Chicagoburbs
    1000 Comments 500 Love Its Second Anniversary First Answer
    member
    So, I really don't know a lot about investments, but it looks like the parents did all the handling on this?  I agree with @Mrsconn23, that maybe 1 account should have been set up...but damage is done, right? 

    mrsconn23
  • mrsconn23mrsconn23
    Tenth Anniversary 10000 Comments 500 Love Its First Answer
    member
    edited September 28
    I think I'd need to know the age difference before really having a strong opinion.  If there's a 10 year age gap, like my kids, I'd be more inclined to say leave it where it stands and take the younger son's contributions and reinvest them in better performing markets/stocks/bonds/etc.   But if it's less than 5 years, I'm inclined to say that they should try to shore up the difference.  How? I'm not an expert, so I don't really know.  

    Also, how far away are these kids from the age of majority or when these funds will be released to them?  Because if they're 9 and 12, it's a lot different than being 14 and 17.  Furthermore, what is the contrast in accounts?  Are we talking $1k vs. $5k or $5k vs. $15k or $10k vs. $25k? 

    I'm also wondering who picked these investments.  I'm assuming the parents and with the help of a financial adviser?  That's why I'm not quick to be all, "This is a lesson for the kids."  Because, they're kids.  They've been put (forced?) into this arrangement by their parents.  It's not bad thing and it's definitely a good way to teach them to be responsible with money and how investing works, but they had no control over this.   They will learn soon enough how things in the 'real world' work. 

    I think that the kids can learn from this and I also think that a loving decision can be made to not put one kid way behind the 8 ball from his brother.  And I think there is a way to not make the older kid feel like he's punished or being 'taken' from.  Again while this money came from allowance, the allowance came from the parents and the decision to invest came from them as well.   I think it's on LW and their spouse to figure out a way to not make the difference so stark. 

    *edited since the LW doesn't state which party they are in the marriage.  ;) 
    short+sassyOliveOilsMomSP29eileenrob
  • CharmedPamCharmedPam Chicagoburbs
    1000 Comments 500 Love Its Second Anniversary First Answer
    member
    I'm wondering how big their allowance was.....

    mrsconn23charlotte989875
  • I'm sitting with Mrs.Conn.  I have accounts for each kid.  6let's has more because I had more to contribute when he was an only child and I was working.  These accounts are only earmarked as theirs though.  I really view it more as a slush fund for any of them.  Who knows what their future needs will be?  6let may get offered a residential soccer camp (hahaha) and he won't need a car.  Max may break one too many bones and need physical therapy 4 times a week making a car a necessity.  Maybe M2 gets a chance to study abroad and needs airfare. 


    There are just too many factors to give any sort of real advice. 
    charlotte989875OliveOilsMomOurWildKingdom
  • mrsconn23 said:
    I think I'd need to know the age difference before really having a strong opinion.  If there's a 10 year age gap, like my kids, I'd be more inclined to say leave it where it stands and take the younger son's contributions and reinvest them in better performing markets/stocks/bonds/etc.   But if it's less than 5 years, I'm inclined to say that they should try to shore up the difference.  How? I'm not an expert, so I don't really know.  

    Also, how far away are these kids from the age of majority or when these funds will be released to them?  Because if they're 9 and 12, it's a lot different than being 14 and 17.  Furthermore, what is the contrast in accounts?  Are we talking $1k vs. $5k or $5k vs. $15k or $10k vs. $25k? 

    I'm also wondering who picked these investments.  I'm assuming the parents and with the help of a financial adviser?  That's why I'm not quick to be all, "This is a lesson for the kids."  Because, they're kids.  They've been put (forced?) into this arrangement by their parents.  It's not bad thing and it's definitely a good way to teach them to be responsible with money and how investing works, but they had no control over this.   They will learn soon enough how things in the 'real world' work. 

    I think that the kids can learn from this and I also think that a loving decision can be made to not put one kid way behind the 8 ball from his brother.  And I think there is a way to not make the older kid feel like he's punished or being 'taken' from.  Again while this money came from allowance, the allowance came from the parents and the decision to invest came from them as well.   I think it's on LW and their spouse to figure out a way to not make the difference so stark. 

    *edited since the LW doesn't state which party they are in the marriage.  ;) 


    I assumed the parents were already taking their ages into account, but it is a good point.  The older one would naturally have more money and more growth from that money, because deposits have been made into that account for a longer period of time.

    Because it seems like the LW is extrapolating out what each account will be worth when the child becomes an adult, for the sake of argument I'll assume that is 18, so then it would account for the same total amount of time.

    I've thought about it more and am curious about the boys' ages right now.  I'll assume a 5-year difference.  It is a lot easier to tell a 7 and a 12-year-old, "We opened these accounts in your separate names as an example of how the money has grown, but we'll adjust the proceeds for fairness when Son A turns 18."  Than it is to tell that to a 12 and 17-year-old.

    I also wouldn't do any adjusting until the oldest is 18 or almost there.  Because if we are talking a number of years out (my impression), there is still a lot that can happen.

    Other curiosity question.  Do the boys actually have different investments?  Because that would be really weird to me.  Or was it just that the older boy's investment account went crazy good in the first few years...before his brother had an account and/or had as much money being added.

    Wedding Countdown Ticker
    mrsconn23charlotte989875SP29
  • I'm reminded of Hmo saying "Fair is not always equal." 
    mrsconn23OliveOilsMomcharlotte989875
  • 6fsn said:
    I'm reminded of Hmo saying "Fair is not always equal." 
    I agree with this sentiment, completely. 

    And I'm not even saying that LW needs to make the accounts equal in value or that they even need to take money from the one son's account and put in the other son's account.  But I do feel if the difference is as extreme as they are stating, there has to be a way to reconcile it. 
  • ILoveBeachMusicILoveBeachMusic Indiana
    1000 Comments 500 Love Its Second Anniversary 5 Answers
    member
    Hmmm. We set up mutual funds for all three of our kids. Unfortunately, DD's didn't have time to recover fully from 2008 when she needed the funds. The boys' funds sat for a few more years and recovered/increased before they accessed it (they still have some of theirs while DD used hers to pay for graduate school). It never occurred to us to even out the funds.
    *Barbie*STARMOON44
  • IMO - split the difference and make a one-time equity shift in the accounts to balance for age.  

    In this case - parents get the say especially if they're the ones managing the money with no input from the kids taking into account the ages of the kids for what is the best in long-term planning.  Put the difference into a third account that remains in the parent's names for use as "Wedding/help with the kids' mortgage" fund..  Then decide as the situations present themselves down the road.  

    It may be time for a lesson in politics and diplomacy of "Helping one's brother"... 
    Baby Birthday Ticker Ticker Baby Birthday Ticker Ticker
  • It sounds like both accounts made money and these kids literally did nothing to earn any this - their parents gave them the seed money and managed it for them. I can see this both ways: 

    1) making it even
    2) a valuable lesson about the world of investing (some accounts earn more, some less)

    I think LW needs to think about the point of this exercise. Was the point to give the kids the same amount of money when they're 18? Or was the point to show them the value of investing (that money, generally, grows) and that investments can be fickle?

    A compromise option would be to say to them: "This is the total of account A and this is the total of account B. We made different choices with each, as you can see, but they both fortunately grew over the long term. It's important that you understand the markets and take ownership of your wealth and future. We have divided the earnings into two accounts and have arranged for them to be used for a purpose that will further invest in your future - a college education. It will help you graduate debt free. You're welcome"
    To me, this really depends on magnitude. Like if it's the difference between one kid getting to go to the college of his choice and the other having to go to community college, then hell no, because that's a lifetime of different opportunities. if it's the difference between one boy getting a new car at 16 and the other getting a used car, then I'm more ok with it. 
    charlotte989875STARMOON44short+sassy
Sign In or Register to comment.
Choose Another Board
Search Boards