Financial Samurai blog about "Bank of Mom & Dad"

[shaynaatl]

Thought this was an interesting piece.  He says: "A Massive Generational Wealth Transfer Is Why Everything Will Be OK"


www.financialsamurai.com/a-massive-generational-wealth-transfer-is-why-everything-will-be-ok/


When I bought my previous home 10 years ago my 68 year old neighbor stopped by to say “hello.” He was the godfather of the block, having bought his building back in the early 70s. He gave me the inside scoop on all the neighbors, and one neighbor stood out in particular.

He said the house across the street was purchased a year before mine by a family who wanted some place for their son to live as he attended UC Hastings School Of Law. The purchase price? $1.45 million for a 2,100 square foot three bedroom, three bathroom house. The son would host at least one fraternity-like party every year, but other than that, the house was pretty tame. The son continued to live in the house after law school and now it looks like they might sell.

For 10 years, the son not only lived for free, but he probably made rental income as well thanks to his two roommates. His $120,000+ law school tuition was also probably full paid for by Bank of Mom and Dad and I’m not sure how he paid for his $60,000 Audi S4. If the house ever sells, I wouldn’t be surprised if he gets to keep the $1 million+ in profits.

It’s clear to me that my neighbor is going to be quite alright, even if he doesn’t work for the rest of his life. If you’re willing to accept so much assistance that’s beyond what you can afford, then why bother working at all? Just mooch off your parents forever!

My Other Neighbor

About two years ago my 32 year old next door neighbor came home in a brand new, $48,000 Toyota 4Runner Limited. I thought it was a quizzical purchase because the car couldn’t easily fit in his garage. I saw him struggle for five minutes just to get the beast in.

Even so, I was intrigued and wrote a post about it called, “Dealing With Money Envy” because I was jealous. He’s lived in his parent’s flat for the past 11 years since college while his parents lived in their other home in the South Bay. With the average SF rent for a two bedroom at $3,800 a month, of course he could afford a new 4Runner. He’s saved $400,000 in after-tax money by not paying rent for 11 years.

My neighbor is a nice fella who now works in real estate with his father. For 2.5 years he got to travel around the world in his 20s without holding down a job because he could. His mother would stop by and share with me how his son was having so much fun. Meanwhile, I worked my ass off all throughout my 20s just so I could be able to afford the house at age 27. His carefree lifestyle is what made me the most envious. The car was just an extra kick in the nuts.

When I was moving out he asked whether I’d like to sell my house to him (to the family really). If he could really afford my house, then his finances must be in great shape because valuations have gone a little nuts as you can see in this chart.

IT IS NOT AS EXPENSIVE TO LIVE AS WE THINK

One of the biggest problems in society today is the widening wealth gap. Part of the angst has to do with the rising cost of living (rents and property prices) while wages for the middle class have stayed stagnant. There isn’t a week that goes by where some type of newsworthy fight between landlords and renters, developers and renters, and tech companies and renters doesn’t occur.

But if you ask my two previous neighbors about costly living in San Francisco, they’ll have no idea what you’re talking about given they haven’t had to pay a dime in rent for years thanks to their parents.

The other week I surveyed four UC Berkeley part-time MBA students about their rent during a meet up one evening. Their average age was 31 and their rent ranged from just $800 to $1,600. That’s not bad for folks who are presumably making at least $80,000 a year. Every single one of them was sharing an apartment or house with a roommate or three. One finally said he was moving in with his girlfriend and splitting their $2,800 a month rent. $1,400 is not too bad at all.

Rooming with other people and living just a little bit further away from city center was the basic feedback of my post asking how people can afford to live in expensive cities on less than six figures a year (check out the 200 comments). To me, it feels weird to still live with roommates after age 30, but I guess that’s how things are nowadays. At least it’s a step up from still living at home with your parents in adulthood.

Let’s meet my new neighbors.

MEET THE NEW NEIGHBORS, SAME AS THE OLD NEIGHBORS

One of the reasons why I moved out of my old neighborhood was to experience a new lifestyle, eat and drink at new restaurants and bars, hike at different parks, and view different sceneries. The people are pretty homogenous on the north end of San Francisco, where property prices easily top $1,200/sqft. I longed for a little more diversity.

I thought I’d experience a more realistic representation of San Francisco given my new house is roughly 50% cheaper than my old house and not too much more expensive than the median SF home price, but not so! It seems like there’s even more parental help for adult children the cheaper you go.

Here is a quick summary of my six neighbors in Golden Gate Heights. They are all wonderful people and one couple even snipped me a bunch of roses from their garden as a welcoming gift.

* Neighbor 1: 50 year old female. Grew up in the house since birth and inherited the house after her parents passed away.

* Neighbor 2: 40 year old male with wife and kids. Father bought his house for him nine years ago according to his father who introduced himself to me while painting his son’s house while he was away.

* Neighbor 3: 23 year old male attending community college. Lives in the entire house for most of the week while his parents live in another house up north.

* Neighbor 4: 40-something year old couple. Lives in his father’s house with his partner. His father lives somewhere else.

* Neighbor 5: 60 year old woman living with 31 year old daughter. Daughter has lived in the house since she was in middle school.

* Neighbor 6: 30-something year old woman with family. Father bought the house for her in cash early 2014. It’s the same father who bought his son a home! Father was a first generation immigrant who started an auto repair shop and saved all his money.

Pretty interesting how much you can learn by just keeping quiet and listening. There’s a lot more detail, which I’ve kept private. For those who asked what I do, I told them I was a writer working on an online media business.

Notice the commonality in all six neighbors? NOBODY has to pay rent or a mortgage because they either inherited the property or their parents paid for the property. None of them had to go to some fancy private university and get some cutthroat job in banking, consulting, private equity, tech or any other high-paying industry either.

I’m not making this stuff up. I am the ONLY turkey who had to aggressively save money and delay gratification for years to buy my latest house! I’m sure my neighbors worked hard, saved their money, and took risks as well. But it’s hard to come up with something as expensive and hard to save up for like property, unless you’re talking about saving and investing for a new business. Oh yeah, doing that now.

My initial reaction to the realization that every single one of my neighbors for the past 10 years didn’t have to pay a cent for their house was, Why bother trying so hard? I was admittedly envious of their good fortune and I felt deflated for having to take a more treacherous path.

I quickly got over my pity-party and focused on the one big positive: Everything will be OK due to a massive generational wealth transfer!
A BETTER LIFE FOR OUR CHILDREN

Someone has to slave away so the next generation can have a brighter future. It’s the American way. We pray our children will have better lives than us because from where I’m standing, life seems so damn competitive.

Elementary school kids are already being pushed by their parents to be superhuman with after school activities and weekend schooling. Elite universities have acceptance rates under 10% now thanks to population growth and the common app. Jobs are being outsourced due to cheaper labor and the internet, which makes the transfer of skills much easier. Costs for real estate, tuition, food, and gas are rising much faster than wage growth. What is a young person supposed to do to get ahead except tell themselves hard truths?

But after witnessing with my own eyes how every single one of my neighbors over the past 10 years was able to get ahead thanks to the help of their parents, I am no longer as concerned! The godfather of my old block has a multi-unit building that generates over $300,000 a year in rent. He said his daughter will inherit the building when he passes. Lucky her.

If I ever have children, they will get living help from me as well if they decide to live in San Francisco. I’ll make them pay at least 75% market rent so they don’t grow up being entitled brats. But still, I will help them out as much as possible because getting ahead is brutally tough. Of course if they decide to complain why they can’t get ahead when they are only working 40 hours a week or less, I’ll let them fend for themselves.
SUPPORT FROM MY PARENTS

My parents provided an incredible foundation for me to learn and grow. I remember my father introducing me to many of his business connections in order to try and help me get a job. In the end, I went my own way, but that’s only because my parents gave me the educational opportunities in order to do my own thing.

One thing that kept me going during the most brutal times in finance was knowing I could always go back to Hawaii and live for free in a home my grandfather purchased 60+ years ago. Hawaii was my backup plan that I almost executed after 9/11 happened. Just knowing that I wouldn’t fall into the abyss provided me motivation to take some risks.

The next time the media says Americans are in financial disarray, don’t believe them. A massive generational wealth transfer is under way to all those deserving and undeserving alike. The average American inheritance is $180,000 and will just continue to grow over time.

And if for some reason your parents didn’t purchase a home 20+ years ago to leave to you and they didn’t save and invest their money wisely over their careers, not to worry! Not only are you not spoiled, you’re now able to create your own fortune one dollar at a time to leave to the next generation.

[Susie]

^o)

I think the extrapolation from "it worked for this guy's neighbors in San Francisco" to "the entire generation is going to be fine and it will work this way for everyone" is, ah, fatally flawed.

[busterpup]

Is this a SF thing? I don't think any of the people I know except one have had their parents pay for housing and/or living expenses. Some parents have helped with a down payment as a wedding gift (not mine, unfortunately!), but generally everyone is on their own. And it isn't like they are coming from low-income backgrounds.

Maybe when their parents die is when the massive wealth transfer will happen, but the parents all seem content spending it rather than saving it for their kids.

[Deleted]

Wow, that is some provocative stuff, lol. I get that he's being TIC. But I don't think his last thought will provide much more than some *cold* freakin comfort to those whose parents aren't well off. To say the least.

"And if for some reason your parents didn’t purchase a home 20+ years ago to leave to you and they didn’t save and invest their money wisely over their careers, not to worry! Not only are you not spoiled, you’re now able to create your own fortune one dollar at a time to leave to the next generation."

Incidentally, what he's talking about is partly why DH and I are so focused on saving for the kids' educations and just in general. Given the state of the economy, the necessity of a college degree is pretty much a foregone conclusion and very likely you'll need a graduate degree too. Plus a few (most likely unpaid or very lowly paid) internships. Plus a place to live while they're undergoing this fancy education Parenting these days feels like a much longer proposition than it was in the past. A lot of MC-UMC parents seem to be on the hook and financially responsible for their children until they are in their late twenties.

[Deleted]

Jul 24, 2014 8:39:00 GMT -5 @vicmo said:

This guy "worked his ass off" so that he could buy a house in San Francisco at age 27? That's pretty young still, so I wonder if he had family $$ help just like his neighbours. Maybe not "here's a free house" levels of help, but something, right?

How old is he? Maybe he bought before the tech industry produced so many start up millionaires and billionaires?

[nessness]

Yeah, I don't think the people this guy knows are anywhere close to representative of America as a whole. Also, he sure makes a lot of assumptions (like the guy whose parents bought him a house to live in during law school. How does he know they didn't buy it an an investment, and will rent it out to other people when their son finishes school? How does he know they're paying for his school?)

I also wish he'd provided a source for the average inheritance being $180k and growing. That seems out of line with all the articles about how unprepared boomers are for retirement.

ETA: I reread and saw that the guy continued living in the house after law school. Still, the author has no way of knowing how he paid for his school or car, or what financial arrangement he had with his parents.

[konapoppy]

Jul 24, 2014 8:35:30 GMT -5 busterpup said:

Maybe when their parents die is when the massive wealth transfer will happen, but the parents all seem content spending it rather than saving it for their kids.

This is what I am seeing, too. It is being spent, and will continue to be spent.

[Deleted]

It's an interesting read because he says straight out what many people probably wonder about. But he does come off as pretty envious and a little bitter (which he admits) of his well off neighbors who are able to give their children a leg up. But isn't that what you're supposed to do as a parent? Plus he's making some big assumptions which may not be true in all the circumstances he mentions.

[raangoli]

While reading this, I started to think about my own neighbors and none of them (to my knowledge) own their houses because of parental help. The only exception to this is the twenty-something do-nothing son living with his parents who irritates the crap out of MH because of his shenanigans.

I know I am ahead of my peers because of help from my parents (they paid for college), but after that I was on my own. I have no designs on any sort of inheritance and work hard to make my own life for myself, MH and a someday child. His view seems very myopic.

[nessness]

Jul 24, 2014 8:47:20 GMT -5 @vicmo said:

Jul 24, 2014 8:42:15 GMT -5 @lcap said:

How old is he? Maybe he bought before the tech industry produced so many start up millionaires and billionaires?

He says in the article he bought 10 years ago.

He also says his first house was twice the median home price in SF, so even 10 years ago that can't have been much under a million.

[Deleted]

He is... not a very good blogger.

[aurora]

Jul 24, 2014 8:30:30 GMT -5 Susie said:

I think the extrapolation from "it worked for this guy's neighbors in San Francisco" to "the entire generation is going to be fine and it will work this way for everyone" is, ah, fatally flawed.

Heck, even the first assumption that the son was earning rent from his roommates appears unsubstantiated.  (Why would you assume that, and not that the parents were receiving the rent?) He just keeps building on his assumptions to reach a completely unrealistic conclusion.

[sweetnsour]

I think the whole thing is bs and his ending irratates the hell out of me. There are a lot of people who don't have the education and Hawaii back up plan. There is a whole working class of people that are forgotten about. Some people never have money to save. Where are they supposed to live? The only thing that I get out of this bs is that parental help is needed for most to get ahead and for those who don't have it, have fun working yourself to the grave in the hopes that your future generation has a chance!

[raangoli]

Jul 24, 2014 9:34:36 GMT -5 sweetnsour said:

I think the whole thing is bs and his ending irratates the hell out of me. There are a lot of people who don't have the education and Hawaii back up plan. There is a whole working class of people that are forgotten about. Some people never have money to save. Where are they supposed to live? The only thing that I get out of this bs is that parental help is needed for most to get ahead and for those who don't have it, have fun working yourself to the grave in the hopes that your future generation has a chance!

This part iked me to no end. Glass houses and all that...

[kadams767]

Jul 24, 2014 8:55:05 GMT -5 @lcap said:

It's an interesting read because he says straight out what many people probably wonder about. But he does come off as pretty envious and a little bitter (which he admits) of his well off neighbors who are able to give their children a leg up. But isn't that what you're supposed to do as a parent? Plus he's making some big assumptions which may not be true in all the circumstances he mentions.

Eh, I can understand some of the bitterness.  I agree that it is definitely a goal to provide a better life for your kids, but the part about the 20-something traveling the world for a few years because their parents pay for it isn't really the same as paying for college, you know?

[Deleted]

Jul 24, 2014 10:05:17 GMT -5 kadams767 said:

Jul 24, 2014 8:55:05 GMT -5 @lcap said:

It's an interesting read because he says straight out what many people probably wonder about. But he does come off as pretty envious and a little bitter (which he admits) of his well off neighbors who are able to give their children a leg up. But isn't that what you're supposed to do as a parent? Plus he's making some big assumptions which may not be true in all the circumstances he mentions.

Eh, I can understand some of the bitterness.  I agree that it is definitely a goal to provide a better life for your kids, but the part about the 20-something traveling the world for a few years because their parents pay for it isn't really the same as paying for college, you know?

True but what a privilege. It's *very* different from the world I come from, that's for sure. If I had the money though I'd love to be able to give my children such an experience. Like a gap year or something.

[kadams767]

Jul 24, 2014 10:07:00 GMT -5 @lcap said:

Jul 24, 2014 10:05:17 GMT -5 kadams767 said:

Eh, I can understand some of the bitterness.  I agree that it is definitely a goal to provide a better life for your kids, but the part about the 20-something traveling the world for a few years because their parents pay for it isn't really the same as paying for college, you know?

True but what a privilege. It's *very* different from the world I come from, that's for sure. If I had the money though I'd love to be able to give my children such an experience. Like a gap year or something.

Agree to disagree.    I'd give a vacation, sure, but that's about my limit.  

[hocus2]

The massive wealth transfer expected in the next 20-30 years will not help >80% of the US. The vast majority of folks in the US will never inherit much and/or don't get significant family help while their parents are alive. While I have been very lucky with family help I'm actually not expecting a large inheritance because I feel the savings they've amassed will get eaten up by a life care facility, aids and health costs (which I am fine with FWIW).

[Deleted]

He seems to think the average inheritance of $180k is common for the average American.

And LOL that someone who has been given an education, business connections, and a Hawaii back-up plan wrote this article. Cry me a big fucking river.

[oswin]

Huh. I don't like this blogger. Naturally, I read the article, then chased a couple of links on his blog. He seems to think that people shouldn't complain about having to work more than 40 hours per week to "get ahead", because he has enough energy to work 80 hours per week, and clearly you won't get ahead working 40  ^o) Also he has a nonsensical article that rambles on and on about how the average inheritance in the US $180,000 (oh wait, he contradicts himself, it's $176,814) and how you're naturally love your parents less when you realize you'll inherit equally with your siblings. Right. This guy's an idiot.

[stealthmom]

Eh. This is VERY common where I live. It's simply not realistic to be able to own your own home w/o the help of parents for most people. I don't see a problem with it as long as they do the same for their own children.

This guy sounds like a major asshole.

[oswin]

Jul 24, 2014 10:39:10 GMT -5 papiercherri said:

He seems to think the average inheritance of $180k is common for the average American.

And LOL that someone who has been given an education, business connections, and a Hawaii back-up plan wrote this article. Cry me a big fucking river.

Yeah, some people can't math. Average inheritance means almost nothing when you have the wealth inequality we do in the US. 

[msmerymac]

Jul 24, 2014 8:39:00 GMT -5 @vicmo said:

This guy "worked his ass off" so that he could buy a house in San Francisco at age 27? That's pretty young still, so I wonder if he had family $$ help just like his neighbours. Maybe not "here's a free house" levels of help, but something, right?

At the very least he was likely privileged enough to have his education paid for. And possibly boomeranged back home for a few years to save money. That is not something everyone can do. Look how many people here have student loans, some in the 6 figures. 

Speaking of... he doesn't explain how he knows that the 31 year old living with her 60 year old mother ISN'T paying her mom rent. Or that she prefers to live there rather than her own place, which its possible she can't afford. I mean, I might live with my mom for the privilege of living in a 2 million dollar house, especially if it was cheaper than a 1 bedroom apartment in SF, but I can't guarantee that would be my choice.

[maddiepaddy]

This guy is so presumptuous. How does he know the detailed financial ins and outs of all his neighbors? Give me a break. Plus, just because someone is living in a home that their parents bought it doesn't mean that they're necessarily living 'rent free' as the writer harps on repeatedly. Perhaps there's a mortgage on the home and the kid is paying that as well as the property taxes, etc. This guy sees what he wants to see through his green-eyed goggles.

Of course there are some people to are offered and accept a completely 'free ride' from their parents. However, the assumption that everyone who is lucky enough to get a boost from their parents is a lazy, entitled asshole (as the author seems to think, project, w/e) is just so flawed and idiotic.

[raangoli]

Jul 24, 2014 11:09:34 GMT -5 @crackhabit said:

I LOL:
www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/

NO REASON TO EVER COMPLAIN

"If you work in America, you can see from a top down and bottoms up perspective you’re doing fantastic. If you are in the bottom 50% of Americans who earn less than $33,048 a year, know that you can earn more if you want to. Half the battle is just moving to a vibrant location such as the San Francisco Bay Area where billions of dollars are flowing in due to technology innovation. It’s not like you have to brave the high seas to reach America. It’s not like you need to ride a horse for three months to get from New York to get to California. All you’ve got to do is hope on a bus or a plane to be where the action is!

"There are plenty of six figure jobs out there for the taking. You just need to have the desire, motivation, work ethic, and perseverance to get there. Did you know as of 12/2012, the San Francisco police chief makes $320,000 a year? Furthermore, when he retires, he’ll probably get a $200,000 a year pension for life! It’s not just doctors, lawyers, venture capitalists, bankers, movie stars and athletes who make healthy sums of money. There are six figure earners in practically every single industry, including the non-profit industry!"

IT IS SO EASY YOU JUST HAVE TO MOVE TO a VIBRANT RIGHT PLACE AND TRY HARD.

LOL - is this supposed to be like the Onion of personal finance blogs? Because if not...well...hahahah!

[oswin]

Jul 24, 2014 12:41:08 GMT -5 raangoli said:

Jul 24, 2014 11:09:34 GMT -5 @crackhabit said:

I LOL:
www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/

NO REASON TO EVER COMPLAIN

"If you work in America, you can see from a top down and bottoms up perspective you’re doing fantastic. If you are in the bottom 50% of Americans who earn less than $33,048 a year, know that you can earn more if you want to. Half the battle is just moving to a vibrant location such as the San Francisco Bay Area where billions of dollars are flowing in due to technology innovation. It’s not like you have to brave the high seas to reach America. It’s not like you need to ride a horse for three months to get from New York to get to California. All you’ve got to do is hope on a bus or a plane to be where the action is!

"There are plenty of six figure jobs out there for the taking. You just need to have the desire, motivation, work ethic, and perseverance to get there. Did you know as of 12/2012, the San Francisco police chief makes $320,000 a year? Furthermore, when he retires, he’ll probably get a $200,000 a year pension for life! It’s not just doctors, lawyers, venture capitalists, bankers, movie stars and athletes who make healthy sums of money. There are six figure earners in practically every single industry, including the non-profit industry!"

IT IS SO EASY YOU JUST HAVE TO MOVE TO a VIBRANT RIGHT PLACE AND TRY HARD.

LOL - is this supposed to be like the Onion of personal finance blogs? Because if not...well...hahahah!

He goes on in that post to basically advocate for a completely flat income tax... because "inequality is wrong" and therefore everyone should pay equal taxes and wouldn't we solve the budget problems if everyone just paid their share?

[starlily]

This guy is an idiot.

Yes, SF is full of multi-generational housing situations, especially amongst natives/long term residents, but what does he actually know abut their financial situations? Absolutely nothing, which is why he sounds so stupid.

[imojoebunny]

Meh... He sounds kind of bitter, but he had the same "fall back" plan as his neighbors, the difference is that he didn't need to use it. Goody gum drops for him. I would much rather be the winner in the not needing a fall back, than the one who has to play "fall back". I am sure some families give without expectation, but far more do it with strings, and often those strings result in failed expectations and not very happy lives.

I also do not believe that all his neighbors are in this situation, maybe just the ones who are nice enough to talk to him.