Kids and Money: Is It O.K. to Play Financial Favorites?

When parents give more financial aid to one child than another, it can cause family discord, especially if the dealings have been kept secret. Here's how to handle financial favoritism

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Life tends to deal different financial hands to siblings. One may land a high-paying job or settle down with a highly paid partner; another may always struggle to keep his or her head above water. That reality doesn’t make it any easier for parents to decide when to give more financial help to one child than another — or less complicated.

I had a client years ago in New York who experienced financial favoritism first hand. Her name was Linda and she had grown up in a relatively affluent home. Her parents paid for both of their daughters’ college educations and helped them with down payments for their homes. They had been treated equally. Or so Linda thought — until her father died. As executor of his will, she discovered that her parents had been financially supporting her sister for most of her adult life. The amount of money they’d given her over time was staggering. Linda, a successful advertising executive, was angry. I remember her telling me she felt like she’d worked hard her whole life to achieve the lifestyle her irresponsible sister had handed to her all along.

Of course, there are two sides to every story. In Linda’s case, her sister had long been unstable. She was in and out of unhealthy relationships and unable to hold a job while trying to raise two children. Her parents were concerned about her well-being and that of their grandchildren and had stepped in to help. Over the years, their handouts created a dependency. When their father died, Linda’s sister — now in her 50s — turned to her for the monthly payouts she’d received from their parents. While Linda understood her parents’ good intent, she was left feeling betrayed and saddled with a financial dilemma she wasn’t prepared for.

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Officially, a parent’s money is his or her own to spend — or give away — as desired. But when financial favoritism is discovered, it can impact family relationships in a significant way. Parents who are providing very different levels of support to their children may want to ask themselves the following questions to ensure they are thinking through all the issues.

When should you let the cat out of the bag?
If your support is minor, temporary or extremely sensitive, it’s probably appropriate to keep mum. However, you should disclose your support if it could impact your other children in the future. This is absolutely necessary if you anticipate them having to chip in to help their brother or sister when you’re no longer able.

Should you tell them why?
Explanation can give you the opportunity to clear the air. However, even if you explain your thinking, your children may disagree with your rationale. You know your children best, so be prepared for different reactions from your children after they learn about financial support for a sibling — especially if they consider that sibling to be irresponsible.

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Have you made promises you can’t keep?
If you’re using money that you’ve set aside for other obligations — like funding your grandchildren’s tuition — be honest about it. It’s likely the child you’re supporting doesn’t want to spend away his or her niece or nephew’s college funds. Being candid with the person in need about how he or she is impacting your own finances may motivate that child to act more responsibly. Regardless, let your other children know if you may have to renege your offer to fund a down payment on their home or your grandchild’s college education.

In the long run, will you have been fair?
I know one couple who thought their unmarried daughter in a low-earning profession would definitely need some extra cash someday. So they left more money in their will to her than to their other daughters. Lo and behold, she married, became a successful lawyer and outearned both of her sisters. No one can predict the future, so consider being equitable when you plan your inheritance.

Wanting to fix things for your children is natural, and it may be tempting to favor a certain one. Whatever the reason, carefully consider how your actions will affect your relationship with your other children and the relationship between them. Open communication may not always make everyone agree with your decisions, but it can at least provide all members of the family with a clear view of your wishes.

Suzanna De Baca is vice president of wealth strategies at Ameriprise Financial.