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.