Michael Liersch, head of advice and planning, Wells Fargo Wealth & Investment Management, provides perspective for parents and grandparents.
One of the most common questions I hear from parents and grandparents is: “How much is too much to give to my children or grandchildren?” As a behavioral scientist, I imagine that I’m asked this question in the hopes that I have the right answer. But, as with many great questions, there is no “right” answer.
Instead, answers to the question may reveal something else entirely. Often, parents and grandparents are concerned that kids will be unproductive because they received too much. To make things interesting in many cases, I’ll reframe the question to: “How much is too little?” Shifting perspective reveals their concern that kids may feel they should have received more.
So then, what is the right amount to give children so that they can do great things but not so much that they can do nothing? The answer lies in many factors — not just whether the “children” or “kids” are adults already but other considerations such as financial literacy, psychological readiness to use money (that you did not earn) productively, perceptions of equity and fairness, financial need, and more.
Consider affordability versus values
But let’s take a step back: Why do parents and grandparents struggle with this question? Otherwise put: Why does the question loom so large in so many people’s minds? Research1 will tell you that there’s a crossover point where more money stops making you happier — and in fact can start making you less happy. That average amount in North America is $105,000 in annual income. A common hypothesis for this crossover point — from happier to less happy — is related to concerns about giving to kids (and others). The idea is that under certain levels of annual income and wealth, you can say no to spending decisions related to kids because you literally can’t afford it.
As income and wealth increase, it becomes difficult to say no.
But at some point, as income and wealth increase, it becomes difficult to say no because it’s more of a value judgment than a question of affordability, which can lead to disruption in families. This begs the question: Do you and your partner or spouse have clearly articulated values that drive your giving decisions? Are those values clearly communicated to the potential recipients? Values may range from a passion for education, philanthropy, or entrepreneurship to simply wanting children and grandchildren to have a better life or more opportunity that you did.
Start with your own financial well-being
In addition to codifying and cohering on values, I would encourage you to get practical. With your spouse or partner, discuss how much would create a comfortable lifestyle for you. And can you truly afford to spend and give beyond that? (And how much beyond?) Getting crisp on your thoughts related to your own financial well-being will enable you and your significant other to have ongoing, collaborative discussions around what makes sense when giving financially to family, in addition to what makes sense based on your values and goals. (And if you don’t have a spouse or partner, I would consult with another trusted advisor, such as a family member or friend, or an objective party.) This is particularly important in our current environment where many of us are acting as the family bank to help other family members manage through this challenging time.