Ever wonder how the person with about the same salary as you lives in a fully furnished apartment, enjoys Caribbean vacations, and is setting aside money for retirement while you share space with an ever-changing roster of roommates, are hoping for a weekend stay at the beach, and are still paying off student loans?

It may be that your coworker, friend, or acquaintance is deeply in debt but it may be just as likely that help from Mom and Dad has moved this person from just making it to living well with few money worries. By my calculations, contributions for college expenses, transportation, childcare, vacation rentals, and weekly dinners could add up to over $400,000 to an adult child’s net worth by the time he or she is 35 years old.

I have long considered the advantages of wealthy families but after reading Linsey’s post on growing up poor and receiving public assistance, I started thinking about the financial benefits of having middle-class parents.

College Expenses

In today’s numbers, my parents' funding of my public university education put me ahead of my indebted peers. For example, if I invested $7,732 per year rather than pay off $60,000 in student loans at 4.9% over 10 years and earned 10% per year, I could have a $218,000 nest egg by 35.

Cars

Many of my friends had cars before graduation day, wholly or partially funded by their parents. I borrowed my parent’s car to go to job interviews and rode my bike nearly everywhere else.

When I did receive an offer for a real job, it was dependent on my having reliable transportation to and from work in a small town with no public transportation (I checked “yes” for transportation on the application with plans to purchase a car). Getting a loan wasn’t quite the snap I expected. My employer, a regional bank who signed me on as a financial analyst, wouldn’t lend me the money to buy the car (the credit department operated separately from human resources).

I thought that my parents could help me with the down payment. But after paying for 3 college educations and funding 2 weddings within 10 years, my parents didn’t have extra cash by the time I, the youngest, finished college. I had saved $500, which helped. 

My parents did have a relationship with a bank, where I encountered a loan officer who empathized with my predicament. She made the loan with my dad as a co-signer. His credit and my savings gave me the start that I needed.

If my parents had given me a $20,000 car on or just before graduation (again in today’s dollars), I could have invested my car payment (annual cost of $4,735 based on 5.9% interest rate over 5 years with 10% investment return) and increased my net worth by over $82,000 at age 35.

Housing

With my new car, I was ready to start my new job. I didn’t have enough money for a security deposit on an apartment or rental house but that didn’t matter. My relocation package allowed 30 days in a hotel, so I saved my first couple of paychecks to fund my launch into the real world. Housing costs in this area were relatively low and I found a roommate at work so my upfront cash needs were minimal.

Contrast my situation with that of a co-worker’s. Her parents didn’t want her to waste dollars on rent so they gave her money for a down payment on a house. Though I can’t recall the details, she may have been able to rent space to a roommate, further elevating her financial status.

Still, her parent’s decision, though sensible, didn’t strike me as particularly wise. We lived in a small town with inexpensive, though limited, apartments and houses for rent. Real estate prices weren’t rising very fast – in fact, they were stagnating due to high interest rates.

I wish I could say that the gift had thwarted my co-worker’s self-reliance but I don’t think it did. Still, her homeownership made her separate from the rest of us. Did it rob her of the sense of satisfaction of succeeding on her own? Maybe, it did. But, more importantly, she may not have learned how to live with less comfort and more creativity.

Here are some things I remember from my close-to-the-financial-cliff days:

Fun

  • Near-weekly hiking trips in the Blue Ridge Mountains
  • Impromptu parties
  • 15 people in a beach house rented from a friend of a friend because we were too young (under 25) to rent from a property management company

Finance

  • Light bulbs going off in my and my friends' collective 20something brains that paying the minimum payment on credit cards would keep us indebted for years
  • Thrill of cable television at someone else’s house
  • Realization that savings was better than furniture
     

Wisdom and social interaction aside, my colleague's net worth may not have been boosted much by her parent’s generosity. Though $80,000 could have gotten her in a 3 bedroom-2 bath home in our town in the early 80s, interest rates were double-digit (10-13%) so that her monthly payments were likely over $500 and even with a roommate paying $100-200 per month, she could have paid less to live in an apartment (during this time, I paid $112.50-$150.00 for my share of an apartment in the boonies and then a rental house in town; note: small-town living is not exciting but can be very inexpensive). If my co-worker had pocketed and then invested the proceeds from the sale of her home in an amount equal to the down payment (after our employer had been sold to an out-of-town company), she’d be about $45,000 richer at age 35.

Gifts of Cash, Stock, and Furniture
Since then, my husband and I have received some gifts from our parents: a loan from his parents to help us through a cash flow crunch right before we bought our first house; college funds for my sons and some furniture from my parents after my mom received an inheritance; and two gifts of cash and stock from his parents. Combined, the gifts total about $18,000 over 20 years. And, if I needed more, I had quick access to support.

Financially Self-Made?
You may be thinking that, having paid your way through college, establishing your own credit (something I should have done in college), saving for your first house, and never taking a dollar from your parents that you are financially self-made. But there are other ways that Mom and Dad may have helped or are still helping.

Consider the value of services that they may provide (estimates):

Services

  • Childcare: $150/week for 52 weeks=$7,800 per year starting at age 28; by age 35, your net worth boost is over $47,000 per child. 
  • Sunday dinner: $25/week (considering family members and friends that you may bring along) for 52 weeks=$1,300 per year starting at age 21; by 35, you’re ahead by $45,000. 
  • Room and board: $900/month for 12 months each year should cover housing, utility, and some food costs; live at home for 5 years beginning at age 21 and you are $171,000 richer by 35. 
  • Vacation home rental: $2,000/year for 9 years beginning at age 24 lets you grow your nest egg by $39,000.

They may also offer you used, big-ticket items such as cars and furniture, or they might make payments on your behalf for your children’s preschool tuition, private school tuition, and college fund. Ranging from a few hundred dollars to several thousands of dollars, these gifts may allow you to reduce your spending and save for the future.

What should you do with this information? Here are some ideas:

  • Thank your parents.
  • Refuse gifts if you think that your parents may not be able to afford them without sacrificing their futures (you’ll have longer to earn and watch your investments grow).
  • Realize that the financial playing field isn’t level. 
  • Help someone else who is just getting started. For example, I served as a credit reference to the utility company for the first cousin of a friend who had since relocated, letting the cousin (who I talked to once on the phone) get wired with no cash outlay.

Some of you may have been completely on your own at 18 years or less but many of us have had help of some kind until 21 years or more. I don't have a trust fund but I see now that I started real life with an advantage.