Have you struggled to work out how to treat your children fairly and equally when it comes to money and avoid playing financial favourites? It’s an ongoing problem and a very difficult one to square away. The time value of money, fairness, the use of the money, the age of the child; there are lots of moving parts.
Giving financial support to your children or dividing out your assets in a will is tricky. Emotions rule over logic and it’s hard to know what’s fair.
As a parent you don’t want one child to feel that you favour one more than another, but are equal splits always the fairest way?
People rarely keep a spreadsheet of the financial support they give to each child throughout their lifetime. From picking up the bill at dinner to university tuition fees, sometimes one child ends up with more financial help than another.
One child went to university while the other did not. One had a big wedding and the other eloped. One had three children for whom you paid the school fees, the other had none. Sometimes one sibling is particularly irresponsible with money and becomes a drain on your finances, while the other thrives in their career and is very sensible with money.
Life often deals different financial hands to siblings, regardless of having the same education and upbringing. One lands an excellent job, the other struggles to make ends meet.
Your children reach adulthood in different circumstances. Their financial ‘balance sheets’ will rarely match. If you have three children, each born four years apart, will giving them a third each of a lump sum be fair? Or should you treat each child based on their unique circumstances and needs?
What is the money for?
Research states the main reasons parents help financially is due to a job loss or divorce. Parents also want to help a child dealing with addiction or mental health issues.
These are often short-term issues where the child needs a cash injection to make it through without going into the red. In these circumstances helping another child with the same amount can be unnecessary. They may need financial help further down the line.
If you are willing to help your children through financial difficulty, all children should be aware that they can come to you with their money worries.
Bankrolling one of your children for a prolonged period, or constantly, can leave other children feeling bitter. Enabling a grown-up child to become financially dependent on you can lead to family tension. This can also eat into your savings and the inheritance for the other children. In these cases, lending the money to your child and deciding on an affordable payment plan may work better.
Worried your child is at risk of catching rich-kid-itus? Find out how to treat it early in our blog: Generation Spend: The effects of ‘rich-kid-itus’ and how to prevent it.
Nowadays 60% of parents help their children onto the property ladder. Similarly, on average both sets of parents collectively contribute to weddings costs. According to Hitched the average cost is about £32,000.
Despite any financial differences between your children, it may be unfair not to gift them equal amounts. For example, if you were buying Christmas presents for two of your close friends, you would spend the same amount on each regardless of the fact one earns £100,000 and the other £40,000. Usually we wouldn’t even think to take earnings into consideration.
Gifts are a tax-efficient way of distributing your wealth before you die (if you can afford to). It allows you to see the happiness and life-changing results your money can make. Find out more by reading our blog: Why you should gift your adult children their inheritance early.
Dividing up your wealth between your children after your death can be a tricky. In a lot of situations equal shares of assets among the children is the right choice. There is a difference between leaving an equal inheritance, where each child receives the same amount, and an equitable inheritance, where each child receives what’s fair, given his or her circumstances. It is logical for children to receive the same inheritance when they have:
- similar needs
- comparable situations in life (for example, all children have completed education and have got a job)
- received similar financial support/gifts in the past (for example, you have paid for even amounts towards their house deposits etc)
- each child is mentally and emotionally capable and responsible (for example, there are no conditions or illnesses that will cause them extra expense or prevent them from earning).
In other cases, equal inheritance can feel unfair. If one of your children acted as your caregiver for a long time, you may wish for them to inherit more. This could be to cover loss of earnings and thank them. If one child received a lot more support throughout their lifetime than another child, for example:
- you paid for education costs
- you paid for their wedding
- you gave them a deposit for a house
- you paid for their children’s education fees
While the other child was:
- still in education
- not ready for a house
- not yet married
- hasn’t had children
It would be fair to consider this when dividing up the assets and leave them the difference in the will. A specialist family lawyer will be able to give you expert guidance.
Working out how much you can afford
Are you planning to gift your children money for such things as education funding, a house deposit, or a wedding?
Firstly, you need to work out how much you can afford to give each child and build this into your financial plan. This will ensure you don’t sacrifice your own financial security by aiding your grown-up children, or even cause a family feud by over-promising.
Imagine how your youngest would feel if you told them, ‘sorry darling, we spent all our savings on your brother and sister’s education’, after you had promised you would pay their school fees. It’s not ideal and you may cause some needless family tension. Good financial planning can help you calculate how far your savings can take you.
There is nothing like money to spark family feuds and emotional divisions. The kind gesture of gifting a child money can lead to serious resentment and conflict within the family
This article from the Guardian includes some horror stories about families that have suffered the effects of financial favouritism.
Setting clear expectations for your children advance can avoid conflict down the line. This will give you a chance to discuss any differences and avoid tension mounting up.
If bankrolling an irresponsible grown-up child is eating into the money you saved for something else, be honest with them. Knowing that there is not an endless pot may encourage them to be self-reliant. This could also make the conversation of an interest-free loan rather than a gift easier.
It’s important to remember this is your money to distribute as you wish. Honesty and communication are key to harmony. Your gifts and support should provide peace of mind and happiness to your children.
If you would like to know how much you can afford to help each child please contact us today and we’d be happy to help.