How to Give Your Kids $25,000 at Graduation

Here’s a piece on how one couple gave their kids $25,000 ($25k to each kid) when the kids graduated from college (which they did debt free, BTW). The steps of how they did it:

• When their kids were born, they asked friends and family to give them cash for the kids’ future instead of toys and other gifts.
• They invested this money in index funds. 
• When the kids were old enough to work and save, the parents matched every dollar the kids put into their savings.
• The parents kept encouraging the kids to save by showing them how their money was growing.
• Time and compounding were big factors in making this work — they had 22 years of savings. Told ya time was the most important factor in generating good returns.
• When the kids graduated from college, the parents transferred the money to them.
• One child spent the money gambling and lost it all. The other threw a really big party for his friends and will be remembered as “the guy who spent $25k in one night!”

Ok, I made up that last bullet point, but the rest are accurate.

After reading over this, I like the general idea behind it (encouraging the kids to save, getting the presents in cash versus toys, letting time work to grow the amount), but I’m not sure about one thing — giving it to the kids when they get to be 22.

I remember what I was like at 22 and I’m positive I would not have handled $25k very well. Maybe these kids can. But what about waiting until some other milestone like reaching 30 or getting married to give them the money? Wouldn’t they be a bit more nature and ready to spend the money wisely?

I can’t help but think the “lottery factor” — what to do with a chunk of change all given at once — will be at work here. And we all know what happens to many lottery winners who come into big money — they lose it within a few years.

What’s your take on the issue?