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The Long View
Mark Berg: How to Help Kids Financially Without Ruining Them
00:51:52
A financial planner reflects on what parents should do--and avoid doing--to help their children find their financial footing in adulthood.
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- [00:01]
Jackson Financial
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to Financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Company, Lansing, Michigan and Jackson National Life Insurance Company of New York, Purchase, New York. Please stay tuned for important disclosure information at the conclusion of this episode.
- [00:33]
Christine Benz
Hi and welcome to the Longview. I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar.
- [00:40]
Amy Arnott
And I'm Amy Arnott, Portfolio Strategist with Morningstar.
- [00:43]
Christine Benz
Today on the podcast we welcome back Mark Berg. Mark is the founder of and lead advisor at Timothy Financial Counsel, which is an hourly financial planning firm that he started in 2000. Prior to launching Timothy Financial, Mark served as a client manager at a fee only financial planning firm and he's provided fee only financial guidance since 1995. He holds a Bachelor's degree in Economics from Wheaton College and is a certified Financial Planner practitioner and NAPFA Registered Financial Advisor. He served on the National Board of Directors for the national association of Personal Financial Advisors from 2008 through 2011. In the spirit of full disclosure, Timothy Financial is the firm that my husband and I use for financial planning. Financial relationship with the firm, other than that we pay them for their services. Mark, welcome back to the Longview.
- [01:36]
Mark Berg
Thank you. I'm looking forward to it.
- [01:39]
Christine Benz
Well, we're looking forward to it as well. We want to talk to you today about how parents can help their kids financially without ruining them, which you've indicated is something that comes up a lot in your work, a conversation that you frequently have with clients. So I'm curious, do clients frequently tell you that this is one of their goals or do you initiate that conversation with them?
- [02:02]
Mark Berg
That's a great question. And it's, it's actually a little bit of both. Sometimes clients do initiate, especially if there is some unhealthy history there, there's a little bit of shame to bring those things up. But we as a firm, and I think most financial planning firms do this, really try to lean in and be proactive because that's our, our job, our responsibility. And so we feel that this is a critical conversation to have a healthy transition of wealth from one generation to the next.
- [02:32]
Amy Arnott
And do you find that these conversations tend to surface at specific life stages or inflection points for the children, or is it kind of all over the map?
- [02:43]
Mark Berg
It really is all over the map. Sometimes it's just when the client Starts engaging us. I just had a conversation last week with some clients in their early 40s, and they have younger children and they're looking for resources to start building some good financial education and habits even at a younger age. But we also have clients who have kids that are, well in their adulthood. And we have different issues that we deal, but they're all around the same topic. Absolutely.
- [03:14]
Christine Benz
So we want to talk about helping kids or maybe not helping them at various life stages. And we will take this life stage by life stage, starting with really little kids who are wholly dependent and then moving into those older adults that you just referenced. But before we get into that, what are some general principles for helping kids financially without creating a sense of entitlement in them?
- [03:37]
Mark Berg
Yes, it's a very difficult topic because you can't, you know, one of the core understandings on this issue is there is not a one size fits all topic. You know, this is not that kind of topic. There's not those types of books. You really have to go into their family circumstance to get a better understanding on what are the dynamics that they grew up with that they've raised their kids under. And so that's one of those things that each client has to wrestle with their specific circumstance that they're dealing with. So that, that would be a general overall principle to understand this is not a one size fits all. Another few things that I would mention as far as kind of those general principles. Another is smaller is better at the earlier stages, and then ramping up over time as they age and mature tends to be the most successful route. What I mean by that is whether it's financial assistance or gifts or, you know, interacting with the children, I look at it as more of a journey. It's not an event. And when they're younger, they have less understanding or ability to understand. But as they, as they grow older, you can build on things. And that's, I think, true also in dollar gifts. So that's another principle. And the last kind of overarching principle is just this overall concept of stewardship. I think it's an important mindset. Stewardship is defined as the careful and responsible management of something entrusted to one's care. And that concept of stewardship can be very powerful to help have a healthy relationship with money.
- [05:20]
Amy Arnott
So if we start at the earliest ages, newborn or up to school age, when kids are definitely financially dependent on their parents, when do you think parents should start talking to their children about money issues, and what should those conversations consist of initially? Are there any best practices that you recommend for talking about money with young children?
- [05:49]
Mark Berg
Yeah, that's a great question. I think there's certainly an age where the conversations can start to be had. They can be as early as 6, 7, 8 years old, where you can start talking about really the basics of money, because they really don't have a lot of concepts related to that, some potential best practices or hands on. I think actually using physical cash is really important with young children. It's visual. They can see it, they can spend it or receive it back. So that use of actual physical currency really helps them understand the true cost and the trade off between money, whether it's buying ice cream or going to the store to buy a toy. So I think just seeing visual cash, which is not as common these days, but is a real powerful tool still to this day for children. Other things, as we have worked with clients and they've asked these questions about young children, we like to see kids do something where there's a bit of delayed gratification, where they express desire. And so the conversation then turns to, well, how can you work towards achieving that desire rather than getting that instant gratification? So I think these are some of the just basic foundational principles that you can start at a pretty young age to build for good, healthy interaction with money in the future.
- [07:21]
Christine Benz
Yeah. Building off of that, Mark, I wanted to ask about when and how to send the message that money is finite in the household, that it's not. I'm not an atm, that, you know, we, we do need to set our priorities. And it seems like you'd want to do that without scaring kids or having them worry that, you know, you'll run out. But how do you recommend that parents get into that idea that, you know, for lack of a better term, money doesn't grow on trees?
- [07:49]
Mark Berg
Yeah, there's a couple different ways that a family can tackle this. Some take the allowance route and say this amount that I am giving you is finite and it's for these specific purposes. So it creates that sense of scarcity because there are a certain amount of dollars and it allows for them to say, well, I want X and my allowance doesn't equal X, so I may have to save several of those in order to get to that point. So it just creates some of those foundational principles. So that's one way of doing it. Another is really this concept of work. I would say in the current environment, getting a job used to be more of a rule than exception. Now it's the flip. There's just younger individuals are not working like they used to, whether it's paper routes or mowing lawns or helping a neighbor in doing housework and receiving compensation through that. But that is another great way because they're seeing the return on their investment, the work that they do. And then within that one client, what they do is their kids work. And they have a 10, 40, 50 rule. And the 10 is you have to give away 10, you can spend 40, and then the last 50 cents goes towards your future college. So that's a way that they have created more of a structure to money and help them see the finiteness of it relative to the desires that they may want to spend.
- [09:31]
Amy Arnott
How do you think parents should deal with peer pressure? If the family is growing up in a relatively affluent area and they see a lot of their friends have the latest iPhone or sneakers that are in style or clothing or whatever, do you think that parents should set some limits around expensive purchases like that, even if they could afford them?
- [09:57]
Mark Berg
That's a great question. And it is a family by family conversation. I think that really playing off one of your earlier questions, having that either delayed gratification working towards that special purchase of a pair of shoes or whatever, that's more expensive than traditional, I think that's a very healthy practice. And I think that it's also healthy to say no. And what we often hear from the kids of parents down the road is at the time they did not appreciate not getting that instant gratification. But later on they came to the understanding that was actually very healthy. And so I believe that it would be beneficial for family to not just always give, even if you have the means to do it, because that's not reality, that is not life. And we'll talk about this in later stages. But you know, one of the challenges that new graduates have from, say, college is their mindset of success, or what is normal is what it took their parents 30 years to create. And so there needs to be some balance between that perception and their current reality.
- [11:17]
Christine Benz
Yeah, I want to follow up on that, Mark, but I wanted to ask about this whole idea of indulging kids in expensive stuff. Do you think, though, sometimes that can actually be beneficial for the child if it helps them fit in a little bit? I mean, within reason. But if they feel like they are, you know, similar to their peers in some of these respects, does that help the kid in a way?
- [11:40]
Mark Berg
Boy, now you're getting beyond the financial and into the psychology. And so it really does become more of a case by case basis. But you know, I Have three sons. And my hope for my sons when they were younger was that their peers would appreciate them for who they are, their character, not the wrapping around them, meaning what they wear or, you know, how they spend money or what they drive or whatnot. And so that was really kind of our focus. Though I will say boys are very different from girls when it comes to desire to, you know, latest fashion and all that. So I'm a little ignorant in that regard. So I would say there just needs to be balance to that. I think it can be taken too far to the extreme. And so having some balance where some of these special, you know, purchases really retain their specialness because of their rarity as opposed to always indulging, always buying the latest. And it really creates an expectation that actually isn't sustainable when that child becomes independent because they're not going to immediately be in the circumstance that they can continue that lifestyle.
- [13:00]
Amy Arnott
Yeah, I remember back when I was in middle school and high school, getting ready to go back to school in the fall, my mom would give me kind of a budget for clothing. And I think she actually did some coordination in the background with my friend's mother. So we were all in a similar range. But I think that was helpful because it gave me some choice within limits. And you know, if I wanted one pair of designer jeans, I could do that, or if I wanted to, you know, buy more pieces of clothing, I had that option as well.
- [13:37]
Mark Berg
Absolutely. I think that was very wise of your mom. I actually even like the collusion and collaboration because that helps with that peer pressure issue that everybody faces in that stage of life.
- [13:53]
Amy Arnott
So this is kind of a side topic, but what do you think about personal finance and investing being taught in schools? Do you think that that is helpful or. We've also heard the criticism that sometimes that knowledge doesn't really stick until people are old enough that they are actually paying their own bills and have to balance a budget and things like that.
- [14:17]
Mark Berg
Yeah. I'm of the opinion that it takes several hearings, often from different sources for anything to stick, especially for a younger individual. So I would certainly not discourage it. I would agree that it's not likely going to fully stick, but there may be even just one experience or one example that sticks with that child that really helps carry them. For example, my brother in law used to teach business economics, so he went through that. And the concept of compounding is so powerful when you actually play it out. That was seemed to be a real sticking point, the value of time on investments or whatnot. And that Seemed to be one of those few principles that really stuck with people over time. So I think that it is valuable and the earlier the better to start building some of these key principles. So I would encourage schools to continue to offer that.
- [15:22]
Christine Benz
We wanted to talk about funding college, which is a big financial goal, obviously in many households with children. How should that conversation go? I've heard that it's a good idea for parents to set expectations about how they intend to pay for college, how much they want the child involved in paying for college. Do you think that's a good practice to sort of set parameters about here's what we can do for you, here's what we expect you to do, and so on?
- [15:50]
Mark Berg
Absolutely. I think it's very, very important. It's such a significant cost investment for the family. So as you're broaching that topic, we would suggest early and often from a conversation standpoint, as soon as they are able to work. And this is back to that example that I mentioned where a certain percentage of, let's say earnings was set aside for their participation in schooling. So I think there's so many things that interconnect as it relates to planning for college. So I'll tell you an example or two. A client that I've worked with for many years of modest means. And when we went through their process, we determined without kind of sacrificing your own financial future, you could afford this amount per year. And so what they did was they sat down with each of their kids and they said, this is what we can afford, this is what you can count on. But everything above that, it's on you. And the amazing thing, and it feels near miraculous, it was not a big number that they could contribute. All three of their children graduated debt free because they each took a different path as far as how they approached it. Whether it's two years of community college and then transfer and finish at a traditional four year school, or graduating early or applying for scholarships and grants. You know, there's so many different ways that you can, you can go about it as well as just earning and saving that because it is a significant expense. It's important to have those conversations, set those guidelines and stick to them.
- [17:38]
Amy Arnott
So in working with your clients, I'm wondering, do you often see people over saving for their children's education or assuming that the kids are going to go to medical school or law school, something like that. I remember when I was working as a financial advisor a few years ago, that's something that we ran into, especially with clients who were very successful themselves, who were physicians or attorneys and kind of had the expectation that all of their children would follow a similar path.
- [18:15]
Mark Berg
Yeah, it's a great question. And the answer is yes, in some cases that was definitely the case. And they were planning not only for a four year undergrad, but also for grad school or medical school or law school, that sort of thing. And you know, the 529 plan is a very attractive plan because of the tax, you know, tax benefits associated. It's like a Roth IRA in the sense that it grows tax free, withdrawal tax free. But what we typically do in our recommendations is say let's when they're young, target about 80%, about three years of a traditional school. And then we fine tune as we get closer. But for those that before they came to us came with large balances, we just have to plan accordingly. One of the benefits of 529 plans is you can change the beneficiary. And so we can even eventually go out and kind of set money aside for future grandkids or whatever. So there is some degree of flexibility with that, but we would not recommend over saving. We don't feel like that's the best way the 529 set up for current schooling for a current child. And so we try to hit it as close as we can to actual cost.
- [19:33]
Christine Benz
I want to ask a related question about parents tendency to overextend themselves with respect to college funding. So if their retirement funds aren't really where they should be, they might still be inclined to prioritize the college fund. Do you encounter that and what do you say to clients who are inclined in that direction where that's the key priority and you're looking at the retirement fund and a little bit worried that that might not be what it should be?
- [20:03]
Mark Berg
Yeah, it does happen from time to time. I think any parent wants what's best, whatever they define as best for their kids. And college education is often considered one of those kind of top gifts that you can give to your children. But it has become increasingly, well for sure, expensive and to many unaffordable. And so yes, there sometimes is that unhealthy balance, we would say. And what we try to do is answer that question not by convincing them, but just by showing them their own numbers. And that's what planning, I'm sure those of your listeners who do financial planning, or I'd imagine a lot of your listeners have a financial planner can help them walk that journey of saying, okay, here is your picture. Excluding college, let's layer college in. Let's layer saving for college at different levels and what would be the impact on your financial picture? And so oftentimes we are recommending tapping it down and setting limits. Partly because when those pre conversations were had about college and creating boundaries with them, the decision making for the student may be in a completely different direction. Oh, I want to go to a school on the coast or be by the ocean or this is a really pretty campus or they've got a great Greek system or whatever. And not seeing that, well, there's a $70,000 a year decision associated with that. And so they need to understand the financial part of it. And this is part of training up our kids in financial responsibility and showing our kids that we do that ourselves in big decisions like this is a very important learning tool.
- [21:58]
Amy Arnott
I remember one thing I did with my two sons when they were in high school and looking at the college decision is I actually sat down with them and we filled out the FAFSA together. And you know, it's a very time consuming process, but I think it's was probably helpful for them just to kind of open the kimono a bit on, you know, what are the assets that we have, you know, where do we have these various accounts and how much of that would we be able to use for college funding?
- [22:35]
Mark Berg
Yeah, I think that's a great part of their education. You obviously have to be careful in that it's a case by case circumstance on which children are ready for that. But I think that if they are ready, it's excellent.
- [22:50]
Amy Arnott
So you touched on this earlier, but I wanted to get a little bit more about your take on kids working when they're in high school or college. You know, I've talked to some people who are very adamant that working builds valuable life skills and you know, helps keep kids on track. But other parents seem to have equally strong opinions that they just want their kids focusing on school and extracurricular activities instead of spending a lot of time on part time jobs.
- [23:25]
Mark Berg
Yeah, and that's going to be a family by family decision. I'm happy to share how we approached it in our family. As I mentioned that we have three sons and from an early age they did little jobs outside of the home with neighbors or even, you know, teach swim lessons and then worked. There's certain jobs you can do even younger than 16, within a certain hour range that are acceptable and we adopted that same approach I mentioned earlier of setting money aside for college and for their own spending and forgiving and they really embraced that. And were able to enjoy a pretty nice lifestyle. But what I would say to the point about extracurricular and studies, I found with my kids that having the work that they did throughout the year, especially in the summer, actually improved their habits because there was more of a scarcity of time. And so they had to be more efficient in their studies academically. And we're thankful that all three actually just graduated our last son from college in May. And none of them suffered from an academic standpoint as a result of their work. And we believe it built some great character in all three, the fact that they had to work and got to enjoy the fruits of those labors. So we think that it was a great building block for our family. They still did sports, swimming, tennis, that sort of thing, and hiking school. They did intramurals in college. They did some of the academic, but not, you know, over the top from academic clubs and that sort of thing. But we've been just really grateful for how they turned out. So I. And I feel that their working was really a good part of that.
- [25:26]
Christine Benz
Yeah, that was certainly my experience, too, growing up, starting with babysitting and then on through college. It really was such a valuable way to learn time management, which is one of the best life skills that any of us have. Mark, I wanted to ask about. When kids go off to college, that's usually the time when you get your first checking account. You're in charge of your finances to some extent at that life stage. So can you talk about that? Talk about tools that parents would want to be introducing to their children, like, when is the best time to get your first credit card, for example? Can you talk about that?
- [26:04]
Mark Berg
Yeah, absolutely. So we opened up checking accounts that were under our accounts for each of our sons very early, and we recommend that for our clients as well. And that gives not only visibility to, you know, what's coming in and what's going out, but it also helps build a little bit of history. And from that, especially once they start getting some type of W2 type of job, at that point, you could actually start applying for a credit card. And we encouraged our sons to apply for a credit card as soon as they would be accepted. And yet, at the same time, this is the beauty of technology. We encouraged our sons use your credit card for your expenses, but pay them off literally as you go. So not wait for a month and for that month. So not only did they not have a monthly balance, they really didn't even have a weekly balance, and that kept what they really had available to them. Visible, real time for them. So they knew always there was no surprises about, oh, I have this credit card bill and it's beyond my means because that just wasn't part of the equation. And then what that does is that starts building that credit history so that I look ahead to when they're out of college. If you wait until out of college, the credit limit is so low that it's almost not helpful. And so, you know, we have found that that is valuable, but it's balancing the responsibility of a credit card with the benefits that can come with that credit card. And that's why we, we've always encouraged and they do this still to this day. They just pay off their credit cards very regularly. It's very, very easy to do with technology.
- [27:54]
Jackson Financial
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Co. Lansing, Michigan and Jackson National Life Insurance Co. Of New York Purchase, New York.
- [28:20]
Amy Arnott
If we look at the next life stage, the post college years, you know, maybe spanning the early 20s to mid-30s, this is the period when most young adults are very busy and have a lot of different things going on. They're starting their careers, you know, getting their own apartments, maybe getting married or being in a serious relationship. And you say this is a stage when parents can make some of their biggest mistakes. Can you expand on that a little bit or give some examples of what types of mistakes people might run into?
- [28:56]
Mark Berg
Sure. When people graduate from college, they are moving from dependence to independence and it's almost a semi independence depending on the circumstance. But you know, we as parents again, you know, want our kids to launch well, but we can potentially make decisions that really aren't long term for their benefit because as you had mentioned in an earlier topic, kids need to understand that there are unlimited options for finite resources. And so what we suggest with our clients, and I've done with my own sons, is when they get their first paycheck, we work through what's going to be after taxes, which is a new concept for them. And you know, we talk about 401k and all that, but what's going to come in each month and then we work through what they can afford from, you know, rent perspective from clothing or travel or whatever. You know, their budgetary topics are concerned. A lot of people though, a lot of parents want to help their Kids by supplementing and in kind of moving them into a lifestyle that's really not sustainable according to their actual means. Or they continue to, I'll pay your car insurance or you know, I'll continue to pick up your phone or you know, we've got that family credit card, you know, don't worry about it. And really not allowing them to adult to really own that themselves. So that's creating that, that semi dependence on parents at that earlier stage. I think it really doesn't set them up well for the future. So it's really helping them, working with them and doing things that help without creating that dependence.
- [30:57]
Christine Benz
I wanted to ask about lifestyle considerations a little bit. You referenced earlier that it's common for young people just starting out the creature comforts of their parents as their own. They might have gotten accustomed to a certain level, quality level for hotels, cars, furniture, whatever. It seems like that could be a problem for young people just starting out, especially given the Instagram culture that we live in that's really fueling consumer culture. Can you talk about that, how parents can help their children make healthy consumer decisions?
- [31:34]
Mark Berg
Yeah, that's a great question. And I think it does go back to what are your goals? Their goals, meaning these people in their early 20s, what are their goals? And then what are their resources towards those goals? And understanding that there's going to be a delay in just about any circumstance relative to the goals that they have. And so building that healthy foundation is important. Part of that building of the healthy foundation is again, you know, living within your means. And so whether it be, you know, there's. There's a lot of different examples, a lot of different paths we could go with this. An apartment, Are they going to live in an apartment or are they going to live at home? That's a tricky area that I've had a lot of conversations with. The best approach that I have seen to this is someone who, their rule for their kids and they let them know while they're still in college, when you graduate, you are welcome to live with us. And the first six months is free. And after six months, that'll help you get established, get some savings for a security deposit for an apartment. But if you choose to continue to live at home, it's $400 a month for six months and then that number will double every six months indefinitely. And I know one of their kids was just about at the, I think it was 3200amonth. It was gonna get to that point when they said, okay, I give, and they moved out But I love having that type of thing that really helps, helps with the transition and helps create a launching point. I think that's a healthy way to help. I think in the other areas, like I mentioned earlier, cell phone car insurance, medical insurance that, you know, traditionally had been picked up by the parents we recommend to our clients, they need to own those. They either need to take on their own car insurance, for example, and they're on their own, or they need to pay their proportion on your policy and they, you know, Venmo or sell you each month accordingly. And it's their choice. So then they have to do the research. Am I better at GEICO versus your policy? Or whatever the case may be. But they need to own their expenses so they can make their decisions and they may come to the decision on some of these things. You know what, it's not that high. It was a high priority when you were paying for it, but it's not a high priority when I need to pay for it. And that's good, that's healthy.
- [34:20]
Amy Arnott
So I think that one thing that has changed since the three of us were growing up is that it seems like more young adults are kind of taking their time to get fully launched. You know, maybe they're living at home until well into their 20s, driving their parents cars, taking vacations with their parents. A lot of this seems really healthy and happy in a way for, you know, to have the families still together after that point. But how do you think parents know when it's time to kind of give their kids a nudge and encourage them to move out of the nest and become more independent?
- [35:00]
Mark Berg
Yeah, it is, again, kind of a case by case circumstance. But my encouragements would be consistent with what I said earlier, which is the sooner you can get them to true independence where they are owning their expenses and it's within their means, the better. And that is really kind of the healthiest approach. And some people can say, well, if they're living at home, it's not really that much extra cost for us and it's helping them save. Well, a lot of times though, they're not saving. It just creates an increased capacity to be able to spend and they haven't set aside that money. And in fact, in the case I mentioned before, there are parents that I've seen who have done the rent and unbeknownst to the child, when the child finally says, okay, enough, I'm moving out, they actually give them their accumulated rent back as kind of like a deposit for them. So it's not known it's not expected, it's is just a gift back to kind of help them with that launch. But yeah, my encouragement is if they are to be considered truly independent, they need to be independent of their parents lifestyle and creature comforts and need to work through those hard decisions from an early age of the trade offs of spending versus savings. And probably the one exception that I am okay with is actually family vacations. Those to me are more kind of one off items and family and family time I place a pretty high premium on. So helping with that or covering that, it's probably my soft spot. But beyond that I think the day to day expenses, you know, car payments, all that really need to be owned by the adult child.
- [37:05]
Christine Benz
Well, the data certainly point to spending on experiences as being some of the most impactful ways that we spend money. I wanted to ask a related question Mark, which is something I heard about through a neighbor. This idea of friends of theirs call it a ski trip, spending kids inheritance and the idea is that they take these incredible trips with their kids. But the idea is we're doing this during your lifetime, during our lifetime, to enjoy the time together. What do you think of that idea?
- [37:34]
Mark Berg
Yeah, I'm not opposed to that. As I just mentioned. I really think that family time, especially with aging parents and even grandparents, if they're still living, is really a great investment in the family dynamic. So I think there's a lot of health to that. I don't, I mean I guess there are, there are limits to what these experiences could be and there's going to be natural limits anyway just given that most people have like two weeks of vacation in their first five years of employment anyway, so. But again creating those opportunities for family time, I see there being value to that. But again that's more of the exception and it's, it's an isolated, it's a, it's a compartmentalized expense as opposed to the day to day covering of expenses. So I'd generally be fine with that.
- [38:32]
Amy Arnott
Another big ticket expense at this life stage is often paying for a wedding. Do you have any suggestions for how parents can kind of balance, you know, paying for a beautiful event that is going to be memorable and something that the kids really enjoy versus being financially responsible.
- [38:56]
Mark Berg
Yeah, weddings, weddings are a hard one because there's a lot of emotion tied to weddings. But it is something that, given the variability of cost, I think that it's something that they have to lean in on quickly. Meaning once an engagement is announced or whatnot, a budget needs to be established and it needs to be stuck to. And again, this is part of the continuing training up your kids, even as adults in trade offs. And you know, I want this really, really nice dress. Well, that's going to affect the venue choice or vice versa. So people can do very, very inexpensive weddings and people could do amazing, incredible weddings and you can spend at all levels. But I again, I feel like if the parent is the one that's going to be footing the bill, they really need to be able to have input on how much is going to be spent. And obviously if the child and their fiance wants to do above and beyond that on their own, that's their choice. But creating those parameters is important.
- [40:07]
Christine Benz
I'm curious, from a planning perspective, is it sometimes difficult to kind of set aside your own view of what's reasonable to spend on a big event like a wedding and really listen to the clients about, you know, what their cultural affinities are and the other things that might be feeding into their desire to have a really big ticket wedding? How do you separate those two things?
- [40:29]
Mark Berg
It's nearly impossible, to be honest. You know, we all have our leanings and our personal priorities the way we would handle things. It's very difficult to not let that influence even the best of advisors. But at the same time, what I try to do, what I'm sure a lot of advisors do, is one, help them again understand that decision in the context of the rest of their goals and would it have an impact on the rest of their goals? We'll talk about, you know, again, the training aspect that's important for the child. There being some kind of limits or trade offs that the child needs to think through. So there's different elements, but we can also bring in stories related to other clients, both wins and losses in this regard and hope that those stories will help them come to a good ultimate conclusion on the topic.
- [41:23]
Amy Arnott
For adult children who are a little bit older, another big milestone is purchasing a first home. How do you think parents can decide how much help, if any, they want to provide to their adult children for helping out with a home purchase? Either, you know, by helping them with a down payment or helping purchase furniture or things like that?
- [41:50]
Mark Berg
Yeah, that's a varied answer depending on the circumstance. Part of it is the timing of it. Are you helping them get a home right after they've graduated from College? Is this 10 years in? Are they married? Are their grandkids involved? You know, there's a lot of factors that come into play, but I'd say some general principles. You know, I'D say the number one principle is don't create a circumstance where your help creates a hurt. And what I mean by that is you're putting them either in a financial circumstance, for example, you're, you're buying the home, or you're creating such a down payment that they can get to a next level home that they wouldn't have been able to afford on their own. And now all the upkeep, property taxes, you know, keeping up with the Joneses, all of that becomes a burden and you really lose the joy. So I think understanding kind of those, those trade offs with relation to helping with a down payment or not, or even paying for a house is important. Another aspect, some, sometimes we have clients who are willing to be the mortgage, they're willing to carry it as opposed to the bank provides more flexibility, less fees, et cetera. That's another way to do that. And again, they just need to treat it like a loan. The adult child needs to understand this is an obligation that it's not, oh, can't, you know, I don't have enough to make the payment this month, I'll try to catch up next month. They need to look at it as a true obligation. So I think it can be done healthily, but it needs to be done within that specific child's needs. And they need to be able to show that they can support not just the initial cost, but also all that goes with it. It's like buying a car that needs premium gas and you're worried about, you know, paying for the premium gas. If you're worried about the gas, you shouldn't have bought the car in the first place. So, you know, you just need to look at these decisions holistically.
- [43:57]
Christine Benz
I wanted to ask a very big picture question, which is how parents should balance lifetime giving, whether for home down payments or anything else, with leaving money for their kids and their grandkids via inheritance. Inheritance. I'm suspecting this is a big topic of conversation with your clients and I'd like to hear how you help them balance those two sets of goals.
- [44:19]
Mark Berg
Great question. And we do recommend gifting. In fact, we feel like families who are going to be leaving inherits their children that leaving it all at the end is not as healthy as doing it over time. And so back to one of those general principles that I mentioned, the beginning of kind of that upward slope we use. The language I often use with my clients is start in the shallow end and work towards the deep end with your kids. And so that can be as simple as when Your kids are younger and they're earning money for summer job and they got a W2. And let's say they earn $2,300 over the course of the summer, contribute $2,300 to a Roth IRA on their benefit. And so it's basically tying you work. Here's a benefit. And then it also leads to opportunities to talk about investing. I think it's a very healthy way of doing things, something sometimes people will do, especially when kids are a little bit older, maybe married, maybe starting to have children, and they're thinking ahead to things like college. Maybe it's a matching program. You put in a dollar into a $529. I'll put in $5 up to some limit to help incent them, but also help them. It's working towards very specific goals. Retirement, saving for college as opposed to just giving them a check. You know, like the annual exemption this year is 18,000 per person per year. So they could do that and that could make a lot of estate sense. But it may not be all that healthy for that child because that could just become an expectation, part of their lifestyle. So at those earlier ages, I like being more targeted towards helping, you know, with education or helping with retirement. It could, even if the dollars are sufficient, they could look at helping max out a 401k beyond the match. Maybe they were just doing the match, but there's a lot, lot more above that and really helping bridge that gap. So there's some creative ways that you can give without hurting. And then I also encourage clients as they get older and older is all relative as it relates to child's maturity and kind of stage in life. But I think periodic gifting of a lump gift that is enough to warrant important thoughts, but not enough to really change their lives. And what this does is it really gives you a snapshot, a small example of what their decision thinking will be like when they eventually potentially receive that much, much larger number of an inheritance down the road. And it gives an opportunity not for the parent to micromanage, but the parent to observe the decisions that they make, be available to have conversations, but really help guide and be there on the journey, on the path to help them make good financial decisions. Again, kind of back to that stewardship concept. So I think there are good and healthy ways to start giving money over time, but they're equally ways that could be detrimental and create even a dependency, which is really the worst case scenario.
- [47:58]
Amy Arnott
When people are thinking about estate planning and inherited wealth. Do you agree with Warren Buffett's take on that. He's been quoted as saying, you should leave your children enough so they can do anything, but not enough so they can do nothing.
- [48:15]
Mark Berg
Yeah, it's a nice quote. It actually conflicts with itself in the sense that if you can do anything, then it almost implies that you could do nothing.
- [48:27]
Amy Arnott
So something really frivolous.
- [48:31]
Mark Berg
Yeah, yeah, exactly. Yeah. I think the general principle behind that is you don't want to remove the incentive for those adult children to be productive in society, productive member of society, and so leaving large amounts at a young age to a child where they have kind of unfettered access. What I try to do with clients is number it up for them. So let's say, you know, they have one child and they have a $4 million estate. And what I'll say is, well, okay, if you have $4 million and you put that in a interest bearing money market and let's say it's at 5%, they're going to be getting a passive income stream of $200,000 per year without having to do anything, would that accomplish that second part of Warren's quote, enough so they can do nothing. And are you okay with that? And I find that those types of questions really elicit great conversations and then lead to again, what I referenced earlier, thinking differently than, well, they can worry about it on their own, you know, after we've died, to what do we need to do even now to really build a healthy transition for this wealth?
- [50:00]
Christine Benz
Well, Mark, you've shared so much great food for thought with us today. We really appreciate you taking the time out of your schedule to be with us.
- [50:07]
Mark Berg
It's my pleasure. Thanks so much.
- [50:09]
Amy Arnott
Thanks, Mark.
- [50:16]
Christine Benz
Thank you for joining us on the long view. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts. You can follow me on social media, hristinebenz on X or ristine Benz on.
- [50:33]
Amy Arnott
LinkedIn and amyarnot on LinkedIn.
- [50:38]
Christine Benz
George Cassidy is our engineer for the podcast and Carrie Gretchik produces the show Notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongvieworningstar.com until next time. Thanks for joining us.
- [50:57]
Jackson Financial
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