'A few motherly words of wisdom can go a long way': My two adult sons will each inherit $100,000. What should they do with it?

By Quentin Fottrell

'We live in the greater Boston area, so housing costs are extremely high'

Dear Quentin,

I have two adult sons: One is 33 and single. The other is 30 and married. They will each be receiving an inheritance of $100,000 very soon. I am fortunate that they do at least take into consideration my advice when it comes to financial matters. We live in the greater Boston area, so housing costs are extremely high.

The older son is trying to get a leg on the housing ladder, which is tough on a single salary. But he has a lot of savings ($300,000) and has been fully funding his 401(k) for years - 50% in a Roth and 50% in a traditional account - and has $170,000 there. For him, I think most should go toward his downpayment.

My other son married 1.5 years ago. He is a software engineer. His wife is a medical-device engineer. So they make good money in fairly secure fields. They do not intend to have children. They recently bought a house for $800,000, but only put 10% down. They have no trouble making their monthly payments, but their interest rate is 6.5%.

They both contribute to their 401(k)s, but I don't think they max them out. His wife has $40,000 in student debt. He has no student debt. I'm a bit unsure as to what strategy is best for them. Should they pay off her student debt? Should they start maxing out their 401(k)s? Should they just put the money into an index fund and let it sit? A mixture of all?

I will recommend they discuss it with a financial planner as well, but a few motherly words of wisdom can go a long way.

Wishing to Help

Related: 'I'm only interested in zero risk': I'm inheriting $100,000. Is a 5.5% CD a good rate? Where else should I invest?

Dear Wishing,

Whatever you've done so far appears to be working.

Your sons have made a lot of smart decisions. The single son has amassed an impressive level of savings for one so young. He has more than five times the average retirement savings for somebody in his age bracket (35 and under). And he has $300,000 in a savings account (hopefully a high-yield savings account). He's winning.

Your other son has found love by the age of 30 and has one foot on the property ladder and the other foot on firm ground. He managed to get in and out of college without acquiring any student debt, which may or may not be related to scholarships or financial help from you. Historically, 6.5% is not a terrible mortgage interest rate.

Many people were spoiled by 2.5% or 3% interest rates in 2021. Lest we forget that the 30-year fixed mortgage rate went as high as 16% in the 1980s. Some economists say that 5% is the "magic number" that interest rates must reach before more sellers feel comfortable moving and more buyers feel the time is right to jump. They can, in time, refinance.

In most states, inheritance is regarded as separate property unless it is commingled. Massachusetts law, however, is more complicated than that. "In the event of a divorce, the court has the authority to divide all the assets owned by the couple - including inherited property - in a fair and equitable manner," according to the Davis Law Group in Quincy, Mass.

In the event of a divorce - which hopefully will be unlikely in your son's case - property is divided based on a variety of reasons: They include the source and timing of the inheritance, who benefited from the assets, whether the funds were commingled and/or woven into the fabric of the marriage, in addition to other factors like the length of the marriage.

Your 33-year-old single son is doing everything right and his downpayment seems secure. But I don't necessarily agree that he should tie up all of his savings ($300,000 plus the $100,000 he receives from his inheritance) in that house. House prices can go up as well as down, and if he waits a year to buy a property, he could end up spending a lot less in interest.

Offering financial advice

It seems like they're both high earners. With inflation hitting 3.3% on the year in May - down from a recent peak of 9.1% in June 2022 - he could look into shorter-duration bonds, mutual funds and exchange-traded funds with a maturity of less than five years, in addition to high-yield savings accounts and certificates of deposit (where he can still snag an APY of more than 5%).

As for your 30-year-old married son, you ask: Should they pay off her student debt? Should they start maxing out their 401(k)s? Should they just put the money into an index fund and let it sit? A mixture of all? Yes, yes, yes, and yes. Assuming they're together forever, he could put half or $20,000 towards her student loan, depending on his wife's interest rate.

Other options: Health savings accounts allow them to save money in a tax-advantaged account and withdraw it tax-free for qualified medical expenses. They can also use it to reduce your out-of-pocket medical expenses in retirement. There are strict rules for getting rid of private mortgage insurance for those who only put down 10%, but they're worth looking into. They should also each have an emergency fund.

One word of caution: Giving advice can be tricky. Given the fact that both sons are in their 30s, there is probably more reason to intervene with care than, say, when they were in their 20s and embarking on adult life, especially now that one of your sons is married and there will be two people in that household making decisions. You could, for example, ask to weigh in ("May I offer you some advice?").

Your role helping your sons manage their finances is part of a larger trend. MassMutual's latest Consumer Spending & Saving Survey concluded that American mothers had a higher level of influence on their kids' personal-finance management than fathers. A sizable majority of those surveyed (59%) said their mother was "very" or "somewhat" influential (versus 53% for fathers) in helping them learn how to manage their finances.

Interestingly, mothers are also more likely to share their financial failures with their kids compared to fathers (33% versus 25%). Generation Z reported greater influence from their mothers (47%) compared to 34% for millennials, 32% for Generation X and 28% for baby boomers. The most common lessons include budgeting and saving (40%), paying bills on time (41%) and the need to be financially independent (35%).

Your sons are both well on their way to financial independence. As Moneyist letters go, these are good "problems" to have.

Other columns from Quentin Fottrell:

'I'm not experienced with this amount of money': I'm about to inherit $850,000. What should I do with my windfall?

'It's the saddest thing': I'm happily retired and my friends in their 60s want to know how I did it. Should I tell them my secret?

'I don't live extravagantly by any means': I have $68,000 in credit-card debt and $50,000 in a 401(k). How can I dig myself out of this trap on a $55,000 salary?

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-Quentin Fottrell

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06-24-24 2309ET

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