‘To give or not to give’ is the age-old question that parents of adult children often contemplate. When I am asked for advice on this topic my response is always the same: ‘neither a lender nor a borrower be’ especially when it comes to family and friends. In my experience, the costs far exceed the monetary value given, as relationships tend to suffer irreparable damages.
Having said that, each situation is unique and so to give or not to give really depends upon the relationship between the parent and the adult child. If you are contemplating such a request, consider the following factors before making a decision; your child’s financial history, the other siblings in the family, whether your gifting or lending the money and most importantly, if you can afford it.
Your adult child’s financial history
Before you hand out any money, you might want to ensure that you’re actually helping your adult child and not enabling them. Otherwise you’re just throwing good money, after bad. So ask what the money is for and what sacrifices or life changes they have already made themselves prior to asking for financial help? Get a clear picture of their current financial situation to see if they are living beyond their means. Is borrowing a chronic condition and your adult child needs help once again because they are not managing their money responsibly? Or is this a one-time situation in which they need temporary financial assistance?
Other siblings in the family
Giving money to one child and not another will often lead to resentment. So if you cannot afford to dish out equal amounts to all your children then either ensure to provide the financing by way of a loan so it is paid back, or make provisions in your Will to account for the money given. If it is a large sum of money, you might start off as a loan and then evolve it into a gift as part of the child’s inheritance. Again, ensure to put this in writing to prevent family squabbles when you are long gone.
Gifting or lending
Be very clear, is it a gift or a loan? If it is a loan, set clear expectations. Specify whether there will there be interest charged, the terms of repayment, and put it in writing. Setting terms in writing allows everyone to know from the get-go where they stand and what their future responsibilities are.
Can you afford it?
Before dishing out the money, ask yourself earnestly ‘can I afford to’? Any money you give or lend should be beyond what you need to cover your day-to-day expenses without touching your emergency savings, credit cards/line of credit and your retirement savings. If giving your child money puts a financial strain on you today or in retirement the answer without question should be no.
Responsible money management is part of being an adult as is the consequences for poor management. You are better off helping your adult child improve their financial skills then by bailing them out. Saying no is never easy but it’s better to endure a little discomfort now then a major fallout later. Whatever you decide, just be sure that you think through the ramifications beforehand and seek out the advice of a financial advisor. Maybe the best way to help your adult child is with a little guidance, direction and some time with a financial planner.