Credit Cards, Debt, Education, Medical, Personal Finance

Using Son’s Gift Money For Something Else (Your Advice)

Your Advice - help answer readers' questionsSometimes a situation arises when you must make a decision on whether to use money that you had earmarked for a specific event for something other than its intended purpose. These financial decisions can be some of the hardest to make and is one that I recently received from a reader who wanted to get a more objective opinion on the situation.

When my mother and father died, they left a gift of $10,000 to my son for his college education with me as the guardian for the money. Due to some unexpected medical expenses, I now find myself with about $10,000 in credit card debt without any way to pay it off. Do you think it’s reasonable for me to use the $10,000 that was meant for my son’s education to pay off these debts? I would start a new fund for him and I am sure that by the time he becomes college age I will have $10,000 in the account again. Part of me feels like I am stealing money from him while another part of me feels that this is the right use for the money at this time. I need to get some outside objective opinion to help me decide which would be best since I feel I’m not able to look at the situation objectively. If you were in a similar situation to, what would you do?

Here’s your chance to chime in and give your objective opinion as an outsider to the situation as she requested. What would be your advice to this person?

19 thoughts on “Using Son’s Gift Money For Something Else (Your Advice)

  1. yes, use it. why?

    10k is not enough to get a kid through college. if this situation breaks you financially, you’ll be able to pay for some of the first year with the money, and thats it.

    it would be much more responsible if you used the money to clear up things now, and tighten up your finances and savings in order to prevent similar problems in the future and to gather enough monies to put your kid through college.

  2. I would use it too. When I earmark money it is for something I plan to use it for, but when things don’t go as planned, well, I adjust my plans. Granted, someone else earmarked this money, but don’t you think they would be understanding in this situation, if they were alive today? What good is the $10k for college if you suffer a huge financial setback today?

    $10k can be plenty for college though. 😉

  3. I am a bit confused by the title of this post referring to money that was “earmarked.” This money was not earmarked – it was a gift from grandparents to a grandchild, with the parents as the guardian. If the parents use it, then to me at least, they have stolen the money that belongs to their child.

    The other issue is in the form of this gift. If it was an UGMA, the parents have no legal rights to use it for their own debts.

    In conclusion I am troubled by readers who find no problem with spending money that was a gift to a child and does not, in fact, belong to them.

    I suspect that if the parents continue to read your great blog, they will find a way out of the credit card debt with a better option than spending their child’s college money.

  4. My concern is that the money is being used as an easy way out. There isn’t enough information to know if this is really the only way to pay off the debt or if the person knows the money is there and therefore sees no reason to really tighten the belt. In my experience there are usually ways to cut expenses and if there are, then I don’t think the money should be used.

  5. I am absolutely astonished that this parent would even consider it. Even before I had a son I made a solemn promise to myself to start saving for him. There were many times that I could have used that money, some of it could have been considered an emergency. And I didn’t even have a child yet! Now let’s take it one step further, the parent’s die and their explicit instructions is that money is to be used for the grandchild, and you even consider using it!?!?! I’m sorry, my medical problems are my own, not my son’s. I would sell stock, sell a car, refinance my house, sell art, collect cans, get a part time job, or quite frankly just negotiate a payment plan to pay back that amount really slowly if I just had no money. Ugh, this really bothers me.

  6. Being that $10k is more than enough to get through college (if you choose the right one and/or get a couple of scholarships), I would not use the money for other than what it was intended for.

    I have a couple of reasons for this. First, the money was given to the child for his education. To use it in another manner feels to me like violating the dying wish of a grandparent. Yes that might seem old fashion, but that’s the way I see it.

    Second, if the $10k is used now to save one from financial hardship, what happens when the child goes to college and that $10k is needed then. There is nothing left and the financial hardship is therefore just put off until college.

    Third, and most importantly, many students drop out of college because of the (real of perceived) financial hardship it puts on the parents. I have seen too many bright students of mine leave the university to work because they felt they were causing financial pain to their parents. Many of these students were dropping out with thousands of dollars of student loans, but that loan money doesn’t always make up for what the student could earn working full time at a retail store.

    Before touching the money given for a child’s education, I would have to weight every factor, and in all cases short of saving the life of the child I would refrain from touching that money.

  7. Well, was it in earmark, or a gift in the child’s name? A gift in a UGMA account probably can not be touched so would certainly change my answer. It would make this whole post entirely moot really – you wouldn’t be able to touch it.

    However, I think it really depends on the attitude and values of your family, and how you think the grandparents would feel about it if they were alive today. In this case if it was my parents and my kids they would want me to use the money for the unexpected medical expenses. But we don’t really value going into debt over college or paying our kid’s way, etc. So this is where my answer stems from. If the grandparents in this case valued a paid-for education above all else, my answer would be different. IT really depends, but I still don’t think it is so black and white. Then again, my parents would never earmark money specifically for college for the kids, because of this. The fact that it was earmarked specifically for college probably speaks volumes, as far as the grandparents’ wishes. But I Still see a lot of grey area here.

    We’re talking medical expense, likely quite unavoidable. Probably the only real exception I can see to touching kids’ money – that or just great travesty and loss. But it’s not like this is for somthing fanciful. I assume not due to bad financial choices. If so, my answer would be very different.

  8. Just another way of looking at it:

    If I were the son, I would be really hurt if my mother used my education money for her own purposes. Especially if I found out after the fact… i.e. years down the road. This could seriously cause a huge rift between mother and son. I’m not sure if medical expenses would be enough of a mitigating factor to justify it.

  9. If the reader is confident that she will be able to build up the $10,000 by the time the kid is ready for college, then it seems that she would be able to pay off her debt by the same time as well. I say leave the kids money alone and let the compound interest work for it and for her to work on paying the debt off another way.

  10. This bothers me, as it does her: “I now find myself with about $10,000 in credit card debt without any way to pay it off.” If there is no way to pay this off, how is there a way to save it up again?

    Plus, $10,000 today should have grown to a lot more than $10,000 by the time her son goes to college.

    If there is no way to pay this off, that implies underlying financial troubles. I’m afraid this quick fix will not affect the root cause of these financial troubles and so the reader will have trouble being able to save anything in the future. Something always comes up, doesn’t it?

    I would recommend that the reader brainstorm some ways to get extra money other than using this. Start off with extreme ideas like becoming a homeless family. (It makes the other ideas sound much better by comparison!) Then get creative – can she babysit (with her child)? Sell some things she doesn’t need anymore? Do more things herself like cooking from scratch? Buy clothes from garage sales? Move someplace cheaper? Once she has a few alternatives up her sleeve, she can see how she feels about those in comparison to using this other money.

    She’s going to need to pay this off and start an emergency fund, too, so she never has to face this decision again.

    It’s so tempting with the money right there, but it sounds like she might feel really guilty if she takes it. So I hope she looks at all of the quality of life issues.

    “I am sure that by the time he becomes college age I will have $10,000 in the account again.” This sounds like she doesn’t have a specific plan. Maybe if she makes a plan she can believe in, she won’t feel like she is stealing the money, but just borrowing it.

    Another idea is that this doesn’t have to be all or nothing. She could take part of the money to get the credit card payments down, then pay off the rest of the card as quickly as possible, then start building up the fund again.

    In the future, she should not put medical payments on credit cards. I’ve heard that you can usually work out a much better repayment system with your doctor than what a credit card company gives you.

    (In answer to the question what I would do if I were in a similar situation, I don’t know. On the one hand I have stupidly cashed out a retirement plan before, for no really good reason. On the other hand, I hadn’t promised my parents to save it for retirement.)

  11. Thank you for all your comments. I was the one that wrote in requesting a more objective view.

    There are two (what may be) important points that I left out.

    1. The money was in a bank account. My parent’s gave me the account and said the money was for my son’s college education. It’s not in a UGMA account (don’t even know what that is)

    2. The medical expenses and debt were for treatments for my son.

    I appreciate everyone’s candid responses and not sure if this information would make a difference.

  12. There is nothing worse than stealing from your own child. My parents had bank accounts set up for each of my sister’s three children, and she spent it all; I find this unforgiveable.

    This money should be placed in an interest bearing account, be it a money market, mutual fund, whatever. That would give the child MORE THAN $10,000 to start college. The parent needs to dig themselves out of their own hole.

  13. Hi Debra, I would have to say, not much changes. I can only use myself as an example. My parents were terrible at teaching me pretty much anything, much less about money and even less than that about college. Growing up I was taught that you dont get more money until you spend what you had. I can remember getting $20 for my birthday. I wanted to save that and start a bank account (I was 8). My mother’s response was that I will need it to entertain and/or feed myself. Fast forward a week. Asking my parents for money for an ice cream run. The response? “Don’t you have your birthday money?” Well I was trying to save that. Nope. Spend that first then come back to us IF need more. College, yeah right. College was a word never spoken in our household. As long as you got your high school diploma you were fine. Fast forward three years. I get two cash scholarships for some art projects I was working on. I got $5000 for winning two first place prizes. Oh money was deposited in the bank all right, their bank. That money was used to pay off a personal loan to a family member and pay off some other bills. I was furious. When confronted, my parents simply said that until I was 18, they were in control of any money I got, and any money I got would be used to pay bills. This made me bitter beyond belief. So now looking at things today, I look at what private school costs, what healthcare costs, what sports costs. Should I start keeping an itemized ledger tallied on what his total cost to me is going to be? Then when he comes of working age, start billing him? With interest of course. The point of being the parent and having a child is to teach them what you learned or should have learned. Doing this would/could cause a tear in your relationship with him.

    Have you even talked to him about it? You haven’t mentioned his age. Is he of age to where he would understand and have a reasonable say in what happens to this money?

    Sorry, still think its wrong.

  14. I don’t think many personal finance issues are black and white, but in my opinion this one is. Using the money for another purpose is absolutely, unequivocally wrong.

    The deceased apparently did not indicate that the money was to “help raise a child”. They said it was to “help pay for college”. I’d consider it a breach of fiduciary duty to use it for another purpose.

  15. I know you would have every intention of “paying back” your son’s money, but good intentions often don’t materialize.
    If you put that money in a high interest savings account, like ING or Emigrant, he would be earning over a dollar a day in interest.
    If you can’t pay off the $10,000.00 debt on a credit card, what makes you think you can pay your son back?
    Put his money in a high interest account, or a good mutual fund, and make arrangements to pay the medical bills as you can.
    I had a friend whose parents “borrowed” his college money, which resulted in his not being able to afford to go away to college. He had to live at home, work, and go part time. He resented that the money he worked for throughout high school, was “borrowed” and never paid back.
    If that money is too much of a temptation, contact a mutual fund company, and set up an account for him, or open an account with ING, and get an extra $25.00 just for opening it.
    Read Dave Ramsey’s “Total Money Makeover” and Amy Dacyczyn’s “Tightwad Gazette” to start getting some ideas on how to cut down on spending and getting control of your finances.
    Good luck.

  16. Some responses here sound very angry. Clearly the writer has hit a cord with people. Looking at it a little more dispassionately (it is only money, right :)?), it sounds like what Debra needs is some financial and budgeting help. It doesn’t sound to me like the $10K is even in the proper type of account. What kind of interest is it getting 1%?
    “I am sure that by the time he becomes college age I will have $10,000 in the account again” It sounds like Debra is thinking of money as static, instead of something with increasing value. Depending on the child’s age, there could be $40,000 in that account if it matured properly, so in order to replace the original $10K you have to treat it as a loan and pay back with interest.
    Now, if your debts are growing at a rate of 20%, it might make sense to borrow from this account and pay it back at the lower, more managable rate you would need to replace the $10K. However, it doesn’t sound to me like Debra has a plan to do this.

    I am far from a financial wizard, but if these are medical expense debts maybe you can talk to the hospital about getting help to put together a payment plan.

  17. what do you want to bet, that this person has one or more vehicles he/she is paying monthly for? Get rid of the new vehicles, get a nice used one, and pay off the debt. Dave Ramsey style, baby.

  18. Hi,
    I was thinking :
    1) It depends on how ill your son is. Given that so much money has to be spent on him (I presume it’s not plastic surgery), then it would indicate that the matter is not trivial.If in the worse case ,it’s some kind of life-threatening disease, won’t it be more prudent to attempt to treat the disease rather than saving the money for education.
    The usage of the money is for the same person(your son). But the use is just different.

    2) Depending how old is your son. There could be a few possibilities.
    2.1) If your son is old (near college age), then the timeline would no doubt be very tight.
    2.2) If your son is very young, I think you have a lot of time to play with. But bearing in mind that 10K today is not the same as 10K at that time. Instead of giving back 10K , you should ensure that you get your son through college IF he manages to get into college and stay there in the first place. The reason why I say to put him through college instead of some other figure is because , we can never know how the situation would have changed by then. Hence it would be simpler if you focus on a more definite goal.

    We should think ahead. But if there’s a fire burning right in front of us, shouldn’t we be putting out fire nearest to us before considering a fire that is a few blocks away?

    Just 5 cents of my comments. Hope I didn’t offend anyone. Thanks for reading.

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