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The Baby Boomers’ dilemma – how much should we do for our grown-up kids?

February 9, 2016

Down and Out

One of those PR-generated stories that crop up in the British media from time to time concerns the increasing tendency of female students to hook up with so-called sugar daddies – older men who lavish cash, presents and holidays on kids half their age in return for company and, it seems, sometimes sex.

One company claims that it has 220,000 students on its books who are available for such arrangements. I think that’s hardly credible, and even if the number is accurate, I find it hard to believe that there are so many wealthy middle-aged guys out there waiting to get their hands on kids young enough to be their daughters. At least I hope there aren’t. So I’m not going to bother to link the story. It’s nothing new. Ask Lynn Barber, whose experience in the 60’s was portrayed in the movie An Education.

But even if the number of students actually “using” sugar daddies is a tenth of those registered with the dating company, it still highlights a social issue that affects more than one generation.

Here’s the dilemma for parents of young adults. It’s as old as the hills, yet never more relevant than today. Do you help your kids through school – and possibly university – and then push them off to fend for themselves, or do you continue to fund them until your support is no longer necessary? And does your support in young adulthood delay or accelerate the long-awaited self-sufficiency?

Big questions when the parents have the means to support their kids. When they don’t, no question at all.

The reason it’s highly relevant in the UK is that those coming of age from 2000 onwards are, apparently, the first generation in the modern era to be worse off financially than their parents were at a similar age. Better educated maybe – many more went to university than in my day – but worse off.

Encumbered with student loans, unable since 2008 to get on to the housing ladder without having to raise deposits of up to 35% of the value of properties that in some areas have risen in price by 10% per more over the past decade.

Those who do seek mortgages are asked a whole range of intrusive questions about their spending habits so that lenders can be satisfied that they’re a good risk – one of the legacies of the sub-prime housing scandal that kicked off the 2008 financial crash. If some pre-pubescent bank employee asked me how much I spend on Indian takeaways, underarm deodorant or Netflix, I would struggle to reply in anything other than industrial language.

Meanwhile, the narrative goes, many of my generation, the baby boomers, sit pretty on generous final-salary pensions (not me, by the way). We were able to get 100% interest-only mortgages, and we’ve watched with glee as the value of our houses has grown beyond our wildest dreams. If we need extra cash to build extensions and go on cruises, we can take advantage of equity release schemes. Or we can simply down-size, using the capital released (which are not subject to capital gains) to fund extravagant lifestyles in retirement. We get free bus passes, index-linked state pensions and even a winter fuel allowance.

And those of us who don’t need to raise extra cash on our properties rattle around in homes we originally bought to accommodate our families, while our offspring struggle to pay the rent on their tiny, over-priced apartments.

It’s fair to say that not all baby boomers benefit from the golden scenario I’ve described. But enough have “never had it so good”, as Harold Macmillan said of my parents’ generation, that their votes ensure that his modern successors in the Conservative party will always, barring disaster, enjoy the support of the majority of over-60s in my country.

Until, that is, the first downwardly-mobile generation gets to my age. At which stage, unless they can do something about the problem, the Tories will be toast.

It’s also the reason why Jeremy Corbyn scores highly with the young and dispossessed, as well as with guilty members of my generation. And why Capital in the Twenty First Century, a book on economic inequality by an obscure French academic called Thomas Piketty, topped any number of international best-seller lists last year (mind you, it was probably the least-read best-seller since Steven Hawking’s Brief History of Time).

It’s why every day you will find articles commenting on the factoid that 62 people own 50% of the world’s wealth (62? A suspiciously precise number, don’t you think?). And why David Cameron, the current Conservative Prime Minister, has engaged Alan Milburn, a former Labour cabinet minister, to come up with solutions to the growing gap between rich and poor, and between young and old.

It will take more than an equality czar in a small European country that has seen better days to solve a global problem that’s up there with climate change as one of the biggest potential causes of mass social unrest in this century.

Meanwhile, what can we, the guilty geriatrics, do to alleviate the problem in our insignificant little back yard? Unless we happen to be Bill Gates or Warren Buffett, very little on a global scale. But we can make a difference for our kids?

Quite a lot, I think.

The first thing we should do is ask ourselves, when our kids are still at school, whether we should avoid placing on them the expectation that they should go to university. When I was a teenager, among my peers there was that expectation. And among parents of the time there was a perfectly reasonable view that going to university would boost career prospects and earning opportunities. For me, it was expected but not demanded. So I did it.

These days around 40% of school leavers go to university, as opposed to less than 10% in my day. There are many more courses available to today’s students. Cynics would say that some of them cater for unrealistic career aspirations, or at least prepare them for careers in which the odds against success are high. After all, there are only so many jobs in the media, and only so many opportunities to manage golf clubs.

Whatever the reason, there are too many young graduates working as baristas, earning the minimum wage, still dreaming the dream. Admittedly, that is starting to change. More and more large companies are offering apprenticeship schemes that pay entrants decent salaries while they’re learning, and give them a head start over graduates who enter the market three years later, burdened with debt.

The trade-off is that apprentices miss out on the glorious life experience of three years of semi-leisure in academic institutions. Yes, I know that some might take issue with idea that a university education is a leisurely pursuit, but try convincing trainee lawyers, doctors or accountants – who sweat blood early in their careers – otherwise. For doctors, we’re talking about maybe ten lectures a week versus 80 hours on the wards.

So that’s the first thing: have an open mind about what comes after school, and don’t project the received wisdoms of your youth on to your kids.

Next – and this applies if you have some spare cash lying around – think again about whether you are helping your kids most effectively by helping them buy a property.

The thinking behind getting your kids get on to the property ladder is usually rooted in the assumption that in the long term property is a wealth accumulator. There may be a few up and downs in the market, but you’ll always end up on the plus side, right?

Well maybe, but maybe not. In the era of downward mobility there’s no guarantee that property ownership will be a long-term bet. Certainly those in the UK who lost their homes when property prices tanked in the early Nineties, and Americans who ended up on the street after the sub-prime crash in 2008, would concur. The housing market is one of Donald Rumsfeld’s known unknowns. And a young person investing in property (or having an investment made on their behalf) is riding an increasingly dangerous tiger.

So is the answer to hold on to the cash and let your kids find their own way without your help? Survival of the fittest and all that? Lots of parents feel that way, and in lots of cases this approach pays off. But then what? Your kids might spend their first fifty years hanging on, financially strapped, waiting for “their inheritance”. In other words, for you to die.

Is that sensible? You sit on money that’s no use to you, while your kids wait like vultures for you to fall off your perch. And when you need to spend your savings on geriatric care, they become increasingly bitter as what they thought would soon be theirs is frittered away in exorbitant care home fees. You might also be with the uncomfortable thought that your kids are motivated more by greed than filial piety. Another age-old conundrum. Does one child spend more time caring for aged parents through love and concern, or because they think they might thereby do better out of the will than their siblings?

And what effect does the looming inheritance have on the careers of the kids? Would they make different choices – work harder, save more perhaps – if they knew that there would be no golden cushion waiting for them when their parents pass?

In my view, there’s a very obvious middle way for parents. Much as our kids might not like the thought, owning a property makes little difference to their careers. There are millions of people – especially in continental Europe, who do just fine without ever owning their own houses. We in the UK regard home ownership as a benchmark of professional success and social prestige. It’s a false benchmark, especially if the owner has made use of parental funding.

So what can we do for our kids that really makes a difference to them making it in their own right?

Simple. Invest in their careers, not their houses. If they want to do a master’s degree to increase their chances in the job market, help them. If they’re running their own businesses and are short of the tools to do the job, help them. Do anything that will help them make a success of their chosen path. The important thing, though, is that your support is not the deciding factor in their success. That should be down to their abilities, not your money.

In case you’re wondering what right I have to pontificate on such matters, let me share a few stories from my life.

When I was fifteen, the future was clear and bright. I would go to university, become a lawyer, and whatever I did would be underpinned by a trust fund set up by my father. He was also a lawyer, but moved beyond the profession to become a successful businessman. I was a pupil at a well-known private school. Many of my peers had similar ambitions and similarly wealthy parents.

Then disaster. My father overreached. His businesses collapsed and he went bankrupt, owing a merchant bank nearly two million pounds. A lot of money in 1965. He never recovered from the setback. He did, however, find the money that enabled me and my siblings to finish our secondary education.

Thereafter, I was on my own. No trust fund, no handouts, only the vague possibility that my father might recover his fortune and invest in the business that I eventually started. Which never happened. So all the mistakes I made in that business were my own, which made for a pretty cash-strapped few years after I left university.

But in one sense, I was lucky, because unlike my father, I went through my setbacks in my twenties, when I was young enough to learn lessons and recover from them. He was in his mid-forties when disaster struck, and his downfall was cataclysmic enough to cripple him financially for the rest of his life.

So as a result there was no inheritance to look forward to, no golden cushion. My modest achievements later on were down to me, even though he offered me plenty of moral support. What’s more, I didn’t just learn from my mistakes, I learned from his too.

My siblings all had successful professional careers: a university professor, a teacher and a doctor. I was the only one who eventually went into business. By that time, I needed no support from my parents even if it had been available. Thanks to nearly a decade in Saudi Arabia, I had enough money to invest in the business. Such success as I had was then down to hard work, finding good people to work with and being in the right place at the right time.

But I doubt if I would have achieved much without the education my parents paid for, even if I didn’t realise it at the time. That, and the example of my father’s resilience, lack of bitterness and generosity with his time, was how things have turned out OK for me thus far. And one great benefit from the lack of any inheritance was that there was never cause for me and my siblings to quarrel, scheme and worry over an ancient pile of money.

Given that experience, you could say that I’m biased in downplaying the importance of providing your kids with bricks and mortar, and the virtue of leaving a lump of money for them to remember you by when you’re gone.

And that’s why I would always advocate giving freely of your time when they’re struggling. Advice and expertise, not direction. And if they need some financial support, give it in such a way as they can honestly say in years to come that “I did it thanks to my own effort and talent” rather than “I would never have got to where I am without Daddy’s (or Mummy’s) money”.

Because ultimately the golden dividend of achievement is self-respect, something that can be difficult to gain if you’re addicted to money that is not your own.

Our offspring are a work in progress, as most twentysomethings are. And we’ve made as many mistakes with them as actions that turned out for the best. It’s hard watching them struggle without wanting to make things right for them. Sometimes the only thing you can think of is to put your hand in your pocket. After all, if there’s a choice between emotional and practical support, and throwing money at their problems, money is often the easier option.

And I guess one of the most important things I’ve learned from experience is that support, advice and money on their own won’t make things right for your kids. In the end, it’s mostly down to them.

In other words, we’re not as important as we think we are.

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