Mar 022010
 

Lending money to adult children isn’t necessarily a mistake – but it can be. These tips for parents will help with the decision of if and how much money to lend to grown kids, what to expect in terms of repayment, and how to avoid financial miscommunications and conflict.

”Every parent knows that our care and concern for our children doesn’t stop when they hit adulthood,” says “The Money Couple” Scott and Bethany Palmer, authors of First Comes Love, Then Comes Money: A Couple’s Guide to Financial Communication. “But most of us are a little unclear on how that care should play out financially. Trying to figure out when and how to help adult children with money problems can lead parents into all kinds of financial miscommunication and conflict.”

Here, The Money Couple offers six tips for lending money to grown children.

If you can’t say no to your adult children — going above and beyond financial loans and repayments – read Setting Boundaries® with Your Adult Children: Six Steps to Hope and Healing for Struggling Parents. It’ll help you say no without feeling guilty and could be the best thing you ever do for your adult child.

And here are a few tips on financial loans in families…

Parents, If You Are Lending Your Adult Child Money…

1. Know your child’s money personality. You know better than anyone that each of your children is unique. They’ll deal with money in unique ways, which means you need to base your decisions about helping your child based on her money personality and her history with money. We know a couple whose son has a long history of money problems. He’s a Flyer doesn’t think about money or worry too much about whether he has any. But when he needs to repair his car, guess who he calls? Helping him financially only perpetuates this cycle. That’s very different from a child who is handles her money well, but needs a one-time financial loan to cover an unexpected expense.

2. Remember that it’s okay not to play fair with personal finances and adult children. We also see a lot of couples who feel like they need to give all of their children the same things – if one gets money, they all get money. But it really is okay to lend money to one adult child and not another as long as you have good reasons for doing so. Naturally, you don’t want to give or withhold money to manipulate or punish your children, but it’s perfectly fine to say no to one child and yes to another. You can offer equal amounts of love without offering equal amounts of financial assistance.

3. Respect your partner’s wishes about lending money to grown kids. We’re parents too and we know someone’s always a softy when it comes to the kids. If one of you is more inclined to help your child than they other, work to find a compromise – consider giving a smaller loan or offering other kinds of support. Find out exactly why your grown kid needs to borrow money – and recognize that you both want the best for your child and figure out how to give her just that. And if your partner says “no,” don’t slip your child $100 the next time she comes over for dinner. Don’t let this decision undermine your relationship with your partner.

4. Don’t hurt yourselves to take care of your kids financially. We see so many parents who would rather decimate their own resources than see their kids struggle. But giving away money when you can’t afford it doesn’t help anyone in the long run. Protect yourselves — for your sake and the sake of your children.

If your adult kid can’t save money, read 5 Ways to Encourage Someone to Save Money.

5. Decide if strings are attached (a crucial money loan tip for parents!). Most financial transactions – especially those between family members – have some kind of strings attached. If you give money to your adult children, be as clear as humanly possible about what you expect in return. If you want to be paid back, talk about a timeline and possible interest. If you think helping pay for a car means you drive it occasionally, then work out an arrangement that everyone can agree to. If you hope for more visits or phone calls or meals together, say so. Laying out all the expectations at the beginning can help you avoid the strife that comes with lending adult children money.

6. Create and have all parties sign a contract or promissary note. Save everyone the drama of miscommunication and hurt feelings: write down every detail of your financial agreement. No expectation is too small. Sign it, have your child sign it, and make copies for both of you. If you are expecting the loan to be repaid, you might want to consider filling out a promissory note (you can find a template on lawdepot.com) that serves as a legally binding agreement.

With a little thought and clear communication, you can protect your family from the kind of relational damage only money can do.

For personal finance tips, read 6 Ways to Manage Your Money Better – Save More, Spend Less.

Do you have any questions or thoughts on tips for lending adult children money? Please comment below…

For more info about the Palmers, visit The Money Couple.

  27 Responses to “Should You Lend Your Adult Child Money? Tips for Parents”

  1. I wonder if parents who want to lend their adult children money – or if they’re asked to but don’t necessarily want to – should give the money to a family friend or relative to loan. That way, the parent isn’t lending the money to their child directly, and it’s more business-like.

    Of course, there has to be a solid financial agreement in place for all parties!

  2. Dear Patricia,

    No, you’re not wrong for thinking your son should stand on his own two feet! He has unrealistic, unreasonable expectations of how parents “should” help their kids.

    Parents shouldn’t offer a neverending supply of money to their kids – especially their grown up, adult children! Of course, it depends on the kids’ personality (some are so grateful, and pay back every cent – they don’t feel their parents owe it to them to give them money), the parents’ means, and the lifestyles of both.

    Every situation is different, but the bottom line is that if you can’t or don’t want to lend your adult child money, then you shouldn’t do it. Even if you can’t put your reasons into words, you shouldn’t do anything that doesn’t feel right or that you know will put you in a tight spot.

    Yes, parents want to help their kids through thick and thin…but lending money isn’t the only (or the best) way to be supportive.

    The trick is helping your adult children see that you love them, yet you can’t help them financially. If your kids can’t accept this, it doesn’t mean you’ve made the wrong decision! It means that your kids have grown accustomed to receiving financial help from you, and aren’t ready to cut the purse strings. You need to stand firm, and stick up for yourself.

    It’s your money, and I think you should spend it on yourself and your future. Let your kids earn their own money!

    Blessings,
    Laurie

  3. My husband and I moved abroad after an illness left me unable to work full time. We bought a property and we rent out part of it. We are not wealthy and in the current financial climate we are struggling, so we made a decision to release the last of our money from investments to purchase another rental property. For us this will mean a reasonable annual income of around 18000 euros. We hope to sell one of the properties when we retire and use the money to live on. Neither of us will have much of a pension. Recently I visited my 30yr old son and he was very off with me. We had a talk and it turns out he thought I should have given him the money to boost his new business which is struggling. He was very angry, he said I was selfish and that I could remortgage or sell one of the houses to give him the money. I told him that we wouldnt be able to get a remortgage and if we sold we would make a loss. He said that even if we made 10k it would help him and we could move back and get real jobs! I am so hurt to think that he would be prepared to let us loose all that we have worked for and that he feels he has the right to our money. I have helped in the past by buying carpets, a car and items for my grandson. His wife works 3 mornings a week, he works from home and they share the care of their son. They live in a large rented house in a good area and have luxury food items and the latest gadgets. I dont feel that they have done all they can to live within their means. Please help. Am I wrong to think my son should stand on his own two feet?

  4. Dear Rolf,

    You’re in a very unique position – and your situation reminds me a bit of a friend of mine, who is also a writer. He’s 53, never been published, but has focused on writing for the past 25 years.

    I wrote this article for you:

    Getting Money From Your Rich Parents – When to Say No

    I hope it helps. I don’t think it’s what you want to hear, but it’s what I think! I welcome your thoughts on it.

    Blessings,
    Laurie

  5. Great post. I have an issue, which I hope you can help me with. My mother (a very wealthy woman) offered to support me for the rest of my life, so that I could write. I did not accept her offer easily, but as she had never let me down I finally agreed and quit my secure job. I never once asked her to do this, she offered and made the promise in writing. She paid me for six years (enough to live) and then suddenly changed her mind, claiming that she “felt” she did not have enough money and that I was impacting on her lifestyle (even though she gave my brother a million dollars to buy a house, and continues to pay my sister’s children’s private school education). I was lucky enough to get a job for a year, but the recession hit and it was terminated. At 50, I can’t get work, as I have spent most of my life in academia. I am in financial free fall and my mother doesn’t care. She refuses to help me in any way, except to scream at me to “get a job”. I don’t know what to do. My life is falling apart. I am estranged from my mother and my siblings. My father feels for me, but he is in financial difficulty (and is divorced from my mother). My mother doesn’t want to listen, and although she admits she made a promise, she says that “life changes” and I should “move on”. What should I do?

  6. I don’t believe the selfishness I’m seeing here. I help my daughter out when she needs it, she doesn’t ask frequently, and I would NEVER ask her to pay me back.

  7. Hello Susan,

    That was very nice of you and your hubby to loan his son money! Now comes the tricky part — getting the loan back.

    I wrote this article for you:

    How to Get Your Money Back After Loaning to People You Trust

    I hope it helps, and welcome your comments here or there.

    Blessings,
    Laurie

  8. My boyfriend and I have been helping his son as he could not seem to find work. He has been borrowing to the tune of about $6,000. Now he has a job, has been working for appox a month, has gotten an apartment and we need to know when to ask for this money back. I want to nip the issue in the bud and let him know that he needs to start paying this back next month, before he decides he can start buying toys! What do you think. Susan

  9. Hi Nancy,

    Absolutely, yes, you should get your adult child to sign a promissory note if you loan him money! It’s difficult for parents to draw up financial agreements with their adult children, but it is 100% necessary.

    If you need tips on how to create a promissory note, let me know.

    Blessings,
    Laurie

  10. Great post, Laurie. I just found your website, and this has been bothering me also. My son is always borrowing money, and I don’t know if I should keep giving it to him since it takes longer and longer to pay me back lately. He means well, but I’m afraid he may stop paying altogether one day, and then the problems start. Should I actually get a promissory note and have him sign it?

    thanks, Nancy

  11. Dear Paul ~ Thanks for your comment, and showing us how complicated money loans between children and parents can be. I didn’t even know about gift tax returns, and am glad you brought this up.

    Dear Marie ~ I’m sorry to hear that your kids never call or visit unless they need money! That must hurt, especially after all you’ve done for them. Hopefully, they’ll come to their senses one day and realize how important you are to them.

    Blessings,
    Laurie

  12. My kids ONLY call me if they want money. It breaks my heart. I realize we don’t give to our children just to see what we “get back” or do it so we receive some sort of gratitude. I don’t expect them to kiss my feet or lavish me with thank you’s. But it would be nice if they called to see if i am alive or dead. Texted me on Mothers’ Day. Maybe stopped by on my birthday since they live a few blocks away. Nope. Never. Not once in years. But i am sure the one they call when they need cash. It gets to you and you feel unappreciated. I give. I give to charities and to friends and neighbors etc and i don’t ever expect anything other than it makes me feel good inside. I don’t feel good inside when i give to my kids now. Not anymore. I feel used.

  13. I like this article, especially where Laurie talks about both parties being clear about what’s expected from each party in a money transaction w/family. Several years ago my Dad offered to “give” me some money to help me buy a home after my divorce. My parents are wealthier than most and i was told they wanted to give me this money so i could enjoy it while they were still alive and that I would also be helping them get money out of their estate. The only issue for me was that they said we “had ” to legally do it as a loan, so they could “write off ” 20k per year as a get between them each year. I assumed wrongly that the 20k per year was a tax write off (which would clearly mark the decrease of the note each year), and the answers to any questions re: the write offs led me to that conclusion as well. I’m just a regular guy, I didn’t understand gift taxes and estate planning at the time like I do now. I signed the note their tax attorney sent me( which they later admitted they never even read) and i waited for the “write offs” to free me from this note. When i discovered the “write off” consisted of a hand written forgiveness note, I freaked out, how does a forgiveness letter reduce a debt, in my book it doesnt., far from the cut and dried scenario i was pitched. This was just a convoluted charade to avoid them having to file a gift tax return, which my Dad eventually did a couple years into it, but I still struggle with it and am still terrified of this note coming back on me, and still feel like I owe this money back, even though I never intended to borrow it. It’s affected everything in my life including my relationship w/my parents.

  14. I like this article, especially where Laurie talks about both parties being clear about what’s expected from each party in a money transaction w/family. Several years ago my Dad offered to “give” me some money to help me buy a home after my divorce. My parents are wealthier than most and i was told they wanted to give me this money so i could enjoy it while they were still alive and that I would also be helping them get money out of their estate. The only issue for me was that they said we “had ” to legally do it as a loan, so they could “write off ” 20k per year as a get between them each year. I assumed wrongly that the 20k per year was a tax write off (which would clearly mark the decrease of the note each year), and the answers to any questions re: the write offs led me to that conclusion as well. I’m just a regular guy, I didn’t understand gift taxes and estate planning at the time like I do now. I signed the note their tax attorney sent me( which they later admitted they never even read) and i waited for the “write offs” to free me from this note. When i discovered the “write off” consisted of a hand written forgiveness note, I freaked out, how does a forgiveness letter reduce a debt, in my book it doesnt. This was just a convoluted charade to avoid them having to file a gift tax return

  15. Dear Desmond,

    That’s a great question – and I’m glad you’re not just jumping to lend your adult kids money!

    I wrote this article for you:

    5 Ways to Save Money Every Month While Paying Off a Mortgage

    I hope the money tips help, and that you can share them with your adult kids.

    Blessings,
    Laurie

  16. My adult children have asked me to loan them money for a down payment for a house, but I can’t afford it. How can I help them? I want to give them good tips for saving money, but all I can find are the same old things: don’t buy expensive coffee, turn down the heat. Do you have better tips so I don’t fee so bad about not lending my kids money?

  17. Hello Miriamres,

    First of all, I applaud you on your insight into your son’s personality, and your relationship with him! You’re right that loaning money will set an unwanted pattern that will do far more damage to your relationship than saying “no” will.

    I think you need to accept and even get comfortable with the fact that he won’t like your answer. Most of us women like to take care of, nurture, please, and say “yes” whenever we can — it’s in our nature!

    So, I encourage you to go beyond accepting that it’s not your job to continue to take care of him — he’s a grown man who needs to learn how to take care of himself financially, professionally, and personally. How else will he learn this if you give him money? Don’t just accept this, but accept that he will not like when you tell him this.

    You need to be prepared for the emotional manipulation, anger, and frustration — and be STRONG. The only way to teach him not to manipulate you is to not let yourself be manipulated. You can’t teach him by telling him or lecturing him…you need to teach him by standing up for yourself and staying firm when he lays the guilt trip on you.

    Remember, you’re doing this for his future wife and his female relationships! He needs to learn to respect you, and when he respects you, he will learn to respect other women, too.

    I hope this helps, and invite you back anytime. Let me know how it goes!

    Blessings,
    Laurie

  18. My son has asked me for a modest loan. He has just moved out of my home at the age of 23 and is already having financial problems. He has always had a problem keeping a job, and has never denied himself any wants. Recently he has asked me for a loan and I am aware that me loaning it to him will set an unwanted pattern in our relationship. Reading your blog, i have decided to take the money out of our relationship but the problem is that to him, love equals me bailing him out whenever he is faced with a financial problem. A great deal of emotional manipulation gets in the way of us having a relationship based on respect and understanding.
    Being aware of all that, I am still finding it hard to tell him that i would like him to be autonomous, and that he should be taking care of himself instead of laying trips on me when i refuse to give in. I am conflicted obvioulsy about bailing him out.
    Could you please suggest how to resolve this conflict?
    Thanks

  19. Joe,

    Yes, I think you should talk to an attorney. Many offer free initial consultations — and if you talk with two different lawyers, you’ll get a better idea of the best next step.

    Your best bet is to find an attorney who specializes in divorce and family law.

    Best of luck,
    Laurie

  20. I retired last year I discovered that my ex-wifes attorney was able to change my final divorce agreement three years afterward this cost me 20% of my monthly pension and $10,000 in attorney fees to attempt to rectify this fraud committed. It took six months but before a court date my ex and her attorney wanted to settle. I had no choice but to end this thing my savings was being depleted and in order to end it all it was going to cost me another $18,000 i had no choice but to ask my mother for the money, i am her only living relative and she has income exceeding her living expenses and several other sources of savings, I sat down with her financial advisor and discussed the situation and the monies were paid. A repayment was never discussed nothing was put in writing because my mother understood the situation and said “get back on your feet first and if I should need any extra money give what you can”, i’ve given her several hundred dollars when she’s asked me but I’m still recovering from eight months of losses to my income and attorney fees and I check her accounts from time to time and she has excesses of $3500 a month in her checking account alone. I just recently received a call from her financial advisor demanding that I sign a repayment agreement and a host of other accusations apparently he spoke to mother whom I called and she started yelling at me because I haven’t given her any money in two months. I’m still dumbfounded, I’ve thought about hiring an attorney is that wise? do I owe her anything?

  21. Dear Ursula,

    I have 3 grown children. My two daughters are doing quite well. One is an attorney (she paid her way through school along with scholarships) and the other has a good job as a pension administrator.
    My son, however, has been married for 11 years and is the only one with children and he doesn’t have a good job. Whenever he had a good job, he always said “they were going to fire him” because he would always not get along with the supervisors. So now he is working at a low paying job. He’s always asking for money. It’s to a point where I don’t even want to talk to him for fear he will ask for money.
    This is not anything new with him. He was like this when he was single and living at home. My husband and I had to go bankrupt because we co-signed for a car loan for him. A few years after that he bought a car and couldn’t make the last 6 months payments. I paid the car off then he went and traded it in for a new car!!
    He had a job by that time. That was prior to him getting married.
    They were doing fine as long as both of them were working. Then the children came along. He was the only one working and kept screwing up his jobs. So now he’s working at a job that pays hardly nothing and the wife works as a part time waitress. He’s suppose to pay the rent and she pays the utilities and takes care of the kids clothing. Thus far, he asked me twice to help him out with the rent. Both my husband and I are retired. If I ever told my daughters this they would not be happy. The last time I helped with his rent I told him that next time I see him, he’d better have another part time job. I told my husband that if he calls and wants to visit, we are to tell upfront, that if you’re looking for money, we don’t have any.
    Hopefully, this is the right thing to do. I just wonder what is wrong with him especially since my daughters are doing so well.

  22. Dear Ursula,

    That’s quite the dilemma! One way to resolve it is to repay her the $300 that you borrowed in the past — even though you’ve loaned her thousands of dollars before that — and tell her that you and she need to take money out of your relationship.

    Money complicates family relationships, even if you have a great relationship and a rock solid contract that specifies when the money will be repaid. It’s best to keep your family relationships away from your financial dealings, or resentment and anger will sneak in.

    I think you need to accept your mother for who she is, and accept your relationship for what it is. If you do lend her money, then I suggest NOT expecting to be repaid. But, better yet, I encourage you to tell her that money is no longer part of your relationship. And then you need to stick to your decision!

    Good luck — and who knows, maybe you and your mom will develop a great relationship without money muddying the waters.

    Blessings,
    Laurie
    .-= Laurie Pawlik-Kienlen´s last blog post …Pay Off Your Mortgage – 5 Ways to Make Mortgage Payments Go Away =-.

  23. My mother has asked me for money. She has asked and received money from me in the past in the thousands of dollars. This time the amount is around $2000. She has never paid any of it back. I am unemployed, however my husband can afford to support us(we have a daughter), and if I decide to help her I will have to ask him for the money. I have been living away from her for the past 20 years(she lives in Germany),and our contact is therefor limited. After my father died a few years back, I promised to take care of her, and I have. She complains about not having any money(she says)however she is dressed in best clothes(high-end designer) and drives a brand new Audi(she got a bank loan for this). She has not been a good mother in the past, but I love her, and try to understand her selfish ways. I will most likely ask my husband for the money, but I hate doing so. With the economy being what it is, I have denied myself many things, because I didn’t want to spend the money, but now I feel like I have to give it to her(her need seems legit), and I don’t want to be seen as a bank. She has given me $300 dollars in the past to save me from being on the street, but only after begging. Now that I have a nice lifestyle, I feel conflicted about having to give her money(I know she’ll need it again next year), when she won’t even make the effort to otherwise maintain our relationship. Am I a bad daughter? How do I tell her that i can’t be her bank?? Do I just give her the money, or expect it to be repaid? Can I ask my own mother for the money back?(She does have an ok paying job) Can I ask her to go to a real bank, or do I just suck it up? Help!

  24. Hi Carla,

    I’m glad that you refuse to give your son money, because you and your husband worked hard to achieve financial security. Why should you support your son’s luxurious habits? If he wants to life a wealthy lifestyle, then he needs to find ways to pay for it. I hope he understands your reasoning for saying no to his request to borrow money, and that you don’t give in to his request! I know you love him because you’re his parent, but you need to protect yourself as well.

    Wishing you all the best,
    Laurie

  25. My son just recently asked me for money. He is 47, on his 2nd marriage, & has always had money problems. He fought paying child support when he had to, filed bankruptcy in his 1st. marriage. He eats steak & cure 81 ham while my husband & I or eat hamburger & hot dish or a sandwich. We are 65 & 69, have some money now to live comfortably. I understand he owes taxes from 5 or 6 years ago, current utilities etc. I refuse to give him money because both he & his wife like high end items. They also are feeding 3 grown dogs(hunting) & three grown adult children in their rented home. He works for the Railroad (a good job). I just don’t want to get involved because he’ll think it should be a gift.

  26. Nicola,

    Thanks for taking the time to comment! What an interesting job a divorce coach must be….and I suspect that money problems such as when and if parents should lend to adult children have come up more than once in your line of work…

  27. What a wise list you have put together. It is sometimes so difficult for parents with grown children to know where the line should be drawn.

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