What do parents owe their kids? College, yes; equity, no

Everybody knows that one of the top issues couples fight about is money. But this same type of drama can play out between siblings, parents and extended family members. I’ve learned from my own share of family financial issues that have fractured relationships.

So I’m here to help with another installment of my occasional feature about family financial feuds. If you have a feud going on and want an independent opinion that might help shed some new light on the issue, send me an email at colorofmoney@washpost.com. Put “Family Feud” in the subject line. Or follow me on Facebook or Twitter (@SingletaryM) and send me a question.

Already this year during my weekly online discussions (Thursdays at 9 a.m. Pacific), some readers have asked me to weigh in on family financial issues causing conflict.

During one chat, there was a discussion of parents paying for college. I think they should. Others don’t agree.

“Where is it written that kids at the age of 18 are entitled to be taken care of by their parents?” a participant asked. “It’s as if that elusive ‘college experience’ is what everyone feels entitled to. Hey, it’s expensive.”

Personal finance is just that. Personal. So my views may not align with yours. But when it comes to this topic, here’s where I come down — I don’t view parents paying for college as an entitlement issue but one of responsibility. Unless your child has been able to work and accumulated the funds to pay for college, where is he going to get the dough to cover his education?

Without having money stashed away, the student is going to have to rely on grants and scholarships or loans. And what if there isn’t enough free money, or none at all? If the young person has to borrow, he’s likely to be deep in debt even before his first full-time job.

“Student debt now exceeds aggregate auto loan, credit card and home-equity debt balances — making student loans the second largest debt of U.S. households, following mortgages,” according to research by Meta Brown, a senior economist, and Sydnee Caldwell, a senior research analyst, for the Federal Reserve Bank of New York’s Research and Statistics Group. They also pointed out that the share of 25-year-olds with student debt jumped to 43 percent in 2012, up from 25 percent in 2003.

I tell parents that if they are able, as soon as their child is born, they should save to pay for college. If they aren’t able to save much or if they got a late start, they should talk to their child about other ways to afford school, such as commuting or going to a community college. In this economy, a college degree is a requirement for many jobs. And for me, this means that paying for a higher education has become part of the cost of parenting.

OK, so now let’s skip ahead in years. Your child is an adult and struggling financially. You agree to help. But where does the assistance stop? What is the adult child entitled to? Here’s a situation that a mother who participated in the college-costs chat wanted my help on:

The background: She and her husband purchased her stepson’s home at foreclosure so that he and his family wouldn’t become homeless. They paid well below the fair market value, putting down $50,000 and taking out a mortgage for the rest.

The dilemma: The woman’s husband wants to share any equity in the home with the son. “My husband thinks that his son is entitled to some of the equity. I however, do not believe so since they have not made a payment on the mortgage in over a year. They declared bankruptcy and had over $170,000 debt forgiven. We are charging them rent, but I have doubts about our ability to collect since his son has been unemployed off and on for over four years. We are carrying a mortgage and assuming all the risk. I believe we should keep any gains made. What is your opinion?”

The decision: The discussion is unnecessary. There isn’t any money to divide unless there are plans to sell the home soon.

And there’s the matter of the uncollected rent. If you can afford it and decide to give them a break on rent during a difficult financial period, I could understand. If their finances improve going forward and they pay all the expenses of the house helping to build up more equity over time, then I might share some of the sale proceeds. If you want to leave them the home in your will for estate planning purposes, that’s another matter. But equity partners now? Don’t think so.

Perhaps the solution is to eventually sell them back the home. After all, the intention wasn’t to make money on real estate, but to help them stay in their home. Right now, they aren’t entitled to what isn’t theirs anymore.

Michelle Singletary: michelle.singletary@washpost.com.

Washington Post Writers Group

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