Would you buy your kid a business?
Some parents are making a major investment to get their unemployed grads jobs as CEOs of their own companies.
Are you tired of your new college grad moping around the house, watching cartoons and playing video games because no one will give him a job?
Maybe you should buy him a business. Or should you?
The Wall Street Journal's Sue Shellenbarger wrote a column about parents who bought their unemployed new grads businesses, including a fast-food franchise and a junk-hauling franchise.
Dave Hughes of North Little Rock, Ark., cashed in a retirement account to buy the junk-hauling business for his son Nolen, then 22.
While the two sometimes argue over how the business should be run, Dave Hughes is pleased with his son's performance and the business is now turning a profit.
"Nolen has more business savvy than I did at his age," Dave Hughes told Shellenbarger."I think Nolen will be rolling on his own by next year."
Other parents didn't do as well. One mother lost $250,000 on a failed fast-food franchise for her daughter, and another set of parents lost $350,000 on a coffee shop.
At first glance, it sounds like another one of those East Coast Ivy League rich-person kind of issues. I don't know about you, but I don't have an extra $200,000 lying around at the bank.
But the reality is that there are lots of ways to help your young grads become entrepreneurs short of shelling out hundreds of thousands of dollars for a fast-food franchise. (Restaurants are a very tough business.)
Some parents see buying their offspring a business as cheaper and more effective than paying for graduate school. In the long run, it might be a better investment, if the business is a success -- or even if it isn't but your young grad learns enough from the experience to give him a successful career later.
If you are already giving your adult children funds from the First National Bank of Mom and Dad, it isn't a huge logical leap to then decide it is better to give the money in the form of a business rather than in the form of a no-strings-attached handout. …
Then there is the impact of books like "The Millionaire Next Door," which posit that the quickest path to riches is not a load of highfalutin degrees, but a business of one's own. Of course, the book's authors, Thomas Stanley and William Danko, also argued that giving money to adult children is a fast way to the poorhouse for both parent and child ....
One key question to ask yourself before you put any money into a business for your child is this one: Is he going to get up off the couch and work hard at it? The failure rate of new businesses is high, and any entrepreneur can tell you that the hours are much longer than you would put in at a regular full-time job.
But I have a hard time believing that giving your child a business after graduation is a formula for success -- either for them or the enterprise itself. The most obvious missing ingredient in this situation would seem to be experience. As many of us know firsthand, even decades of work and life experience are no guarantee that a business will succeed.
One of the key motivators for success as a business owner is having the proverbial "skin in the game." But if it's the parents' skin that's in this game, does the child have sufficient incentive? Will he or she have that "I'll do whatever it takes" mentality that comes with starting your own venture?
A grad who can't find a job in his field should certainly consider starting a small service business, which is likely to pay considerably more than he would earn at Wal-Mart. Working as a DJ, pet sitter, tutor, baby sitter, Web designer, computer tech -- all pay considerably more than minimum wage. All those businesses can be started with little or no parental involvement or cash, too.
It is certainly possible to help your child start a business for way under six figures. Maybe you should provide advice, encouragement and suggestions of books to check out of the library. Or maybe you're willing to put up some cash under certain circumstances.
A number of commenters to Shellenbarger's blog saw merit in encouraging new grads to pursue entrepreneurship, and several said they would help their children start businesses. But a reader named "SWVA Mom" would set a few ground rules:
If the alternative is for the kid to live in my basement with no income to support herself, I would certainly consider investing in a business. I think the key for me is that it would have to be my kid's idea and they would have to have a business plan, take complete responsibility for the business, etc. I can understand why many would choose franchises rather than starting from scratch, but plenty of recent college grads have had good new business ideas, too.
Would you buy your high school or college grad a business if you could afford it? Or would you provide nothing but advice and encouragement? Under what circumstances would you consider helping financially?
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