A few weeks ago, an anonymous Redditor posted the following story on the “Millennials” Reddit:
“My wife and I have spent almost two decades of leveling up in jobs and careers and are now in our late 30s with two small children in a HCOL state. We scraped and suffered to buy a small ranch house and two used larger cars for our family. Our credit suffered. I’m personally in $20,000 of debt that I am slowly working down. Our kids attend daycare that bled our savings dry. Typical millennial S-.
Last week I came across my father in law’s account summary. $10 million-plus. Later that week I mentioned I saw that to my own dad. He said, “Well, he’s doing just a bit better than me then.”
LITERALLY WHAT THE F-.
I would give my last dollar to my son to make sure he was more comfortable. To make sure he didn’t suffer debt or bad credit as long as he was working. Here are our own f-ing parents sitting on their piles of gold watching us navigate a new level of f’ed up economics and shopping for discounts and raising our children in sub-par school districts and for f’ing WHAT?”
The story has made the rounds on social media as of late. Many readers have taken sides, some for the son and some for the parents. Those siding with the son echo the arguments: “What good is all that money doing our parents anyway? Why aren’t they sharing with us now?!” Perhaps the fairest point that those in this particular camp have made has been that a gift of something like a million dollars today would make a much bigger impact on the author’s family than it would in twenty or thirty years when they might inherit it. Then again, those siding with the parents have their own points to make.
More than a few good arguments have been made for those siding with the parents. Why is the son entitled to the parent’s wealth? There’s no mention of adult siblings for the author or their wife, nor any explanation of the parent’s circumstances beyond their financial means. Unspoken is also an abundance of scholarship showing the negative impacts of regular or significant gifting to adult children, including dependency issues or financial misbehavior that results from “extra abundance.” Nevertheless, many parents do make significant gifts to their adult children. Sometimes in small “Christmas checks” around the holidays, and other times in big ways, such as paying for weddings, helping with home down payments, or setting up college funds for grandchildren.
This week, let’s discuss what’s at the root of this controversy and what I think as a financial planner who often sits on both sides of the argument.
Money Isn’t Real, But It Has Real Impacts
The seminal question in a discussion is what the value of money is. Succinctly put, money, or rather, currency, has no intrinsic value. It is only worth as much as people prescribe as its value, and otherwise, it’s merely synthetic cloth or paper. In its traditional sense, money is a unit of exchange, but exchange for what? Adam Smith described its most fundamental nature in his book, “An Inquiry Into the Nature and Causes of the Wealth of Nations”:
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar [chooses] to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the [necessities] of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old [clothes] which another bestows upon him he exchanges for other old [clothes] which suit him better, or for lodging, or for food, or for money, with which he can buy either food, [clothes], or lodging, as he has occasion.”
It’s a weighty passage, but money insofar as we use it is not valuable in of itself, but what it affords us. Up to a minimum threshold, it provides us with the means of survival in a society where survival as an activity is more problematic than beneficial, at least insofar as growing a year’s supply of food, building your own shelter, generating your own electricity, and so on are concerned. But beyond the bare minimums of survival and extending beyond more far-considered concerns, such as saving for your children’s college or your own retirement, comes the question of what to do when we have grown an abundance beyond our own needs.
Many people, frighteningly, in fact, do not save enough for their own retirement. The Federal Reserve has shown now for decades in its triennial study, the Survey of Consumer Finances, that a majority of adults entering retirement age have saved less than even half a year’s salary at the median household income. Further, a plurality of adults do not have the cash on hand to absorb a $500 emergency expense. Thus, abundance, as described by the original poster of the Reddit post, is certainly the exception and not the norm.
What to do with abundance?
Remember the title of the blog? “Money is permission.” When your wealth has scaled to the point that it exceeds the needs of your household and even exceeds the need to provide for your future self, you reach what I like to call “the dragon paradox.” I used to put this paradox to potential clients with the following question and subsequent explanation:
“If you had a choice between winning a decent-sized lottery, say, $10 million dollars, or getting to live the rest of your life the way you want to, which option would you choose?”
Inevitably, everyone would choose “getting to live the rest of your life the way you want to,” I would then follow up:
“That’s because you’re not a dragon. Your life’s ambition isn’t to build up a pile of gold to sleep on or a swimming pool to swim around McDuck style. Money is just a form of permission to live your life in the manner you desire, and the amount of money you need to do that may be much less or much more than any arbitrary sum of money.”
Because that’s the simple truth of the thing. Having a lot of money creates an obligation: To manage and monitor it carefully and responsibly. It generates a degree of pressure and anxiety, often which is offloaded to a willing financial planner to manage, or transferred to an insurance company to purchase an annuity so it converts from an obligatory pile of responsibility to a stream of care-free income. Regardless of the path someone chooses to relieve themselves of the burden (if they choose to do so), that wealth creates a strange pressure.
Imagine if the parents of the millennial Redditor had instead been hard-working teachers or government employees who retired on very robust pensions, perhaps with a combined value of millions of dollars, but whose value can only be seen in the constant stream of income they receive every month. Would the Redditor have the same outrage and upset over their parents and in-law’s abundance? Or would they have simply been relieved that their parents were sustainably provided for? Would you find yourself in a position to demand, say, 20% of your own parent’s retirement income if it was just their income and not an abundance? Would you be inclined to give away the same amount in their shoes?
What to do with permission
The beautiful thing about permission is that you don’t have to use it. As a financial planner, so long as a client’s financial plan works out “despite” their decisions, then I’m happy to endorse whatever decisions they decide to make. Buy a boat? Go for it. Take the 180-day around-the-world cruise that costs $50,000 a ticket. Enjoy. Donate it all to the local humane society or pre-pay your grandkid’s college? Good on you.
The thing about wealth is that it provides a level of permission for you. If you want to see a big impact made on your chidlren’s lives earlier on while it makes a bigger difference to them, then do so. They should be rather grateful that you’ve done so, and if they’re not, we won’t make that mistake again. No amount of studies on “spoiling” your kids should determine whether you decide to endow them with an advantage you yourself earned. Because it’s not the demand of your children to help them that warrants whether you use the permission you’ve earned to do so, but your own choice.
Conversely, any parent with any amount of wealth is fully entitled to say, pardon the French: “Fuck ‘dem kids.” It doesn’t matter if you earned your wealth, inherited it, or literally won the lottery. It’s your wealth, your abundance, and your permission. Spend it how you like, and if your kids (or anyone else for that matter) tells you what to do with your permission, encourage them to suck on a lemon. What I’ve found as a financial planner is that most folks feel strongly one way or the other. Each and every individual is welcome to make that decision on their own part, for their own part, and by their own reasoning.
Money is permission. To do, to do not, it doesn’t matter. What matters is that you live your life the way you see fit, within the boundaries as you’ve earned, won, or been awarded for yourself. We only get one trip, so spend it as you will.