That’s the question a parent must ponder when an adult child asks for financial assistance.
One of the greatest parts of being a parent occurs when you become a grandparent. So, it is with great joy that I greeted the newest member of the family, Addison Grace, on April 12, as she made her world debut. The miracle of life will always amaze me. I marvel at the wonderful life that has yet to unfold before little Addison and the challenges she will face.
Grandparents often joke that they get to spoil their grandchildren and then leave to let the parents deal with the aftermath. I’m sure that a lot of this is meant in good fun. However, when it comes to money, there is a point when spoiling can have a long-term negative impact. My father was raised during the Depression and I remember asking him for financial help with something when I was in my teens. He told me that he wouldn’t help me because it would be robbing me of the joy of working for what I wanted. He said I would appreciate and value the things I worked for more than those that were handed to me. I thought it was a brush-off to get out of loaning me money. I learned much later how right he was.
My generation, the baby boomers, has been more prosperous than our parents. Unfortunately, a lot of us have spoiled our children and may now be spoiling our grandchildren financially. As my father said, we have robbed our children of the joy of working for the things they want. I have been doing a lot of interviews recently on the baby-boomer generation and whether they are prepared for retirement. The numbers don’t look good. According to AARP, 80 percent of boomers believe they will need to continue working after they reach age 65. Twenty-five percent said that one of the reasons they weren’t able to save enough to retire was because they were still supporting their adult children!
It is not always easy to determine when your help is really needed and when you might just be helping your child avoid financial responsibility. It is important to carefully consider the financial ramifications – not only to your own future, but what you might be doing to the person you’re intending to help. Here are some guidelines to consider when you are asked for financial help:
1. Do they have a budget?
Always ask to see their budget before you agree to help. Most likely, they won’t have one. That is probably why they are in a financial bind to begin with. Helping them put together a budget will reveal if this is a minor financial dilemma or if they have some big spending problems. They will need to get their spending under control so they can avoid being in this situation next month and be in a position to pay you back if you choose to make this a loan.
2. Are you helping or enabling?
Will this be a one-time means of financial support? Or, are you bailing out your adult child yet again from his or her overspending? It is not uncommon for someone to ask for help with a credit-card balance that has gotten out of hand. The problem is the spending, not the credit-card balance. If you help them pay down the credit card without correcting the spending problem, they’ll be back again in six months with another big credit-card balance and new excuses.
3. How will this affect you?
Do you have the money to lend in the first place? I’ve seen situations where parents have co-signed loans for their child only to get stuck making the payments. Several times, clients have asked about taking a line of credit out on their own home for their child, with the understanding that the child would make the payments. Always consider the worst-case scenario and how that would impact you. Your child may be the most financially responsible person and have every intention of making those loan payments. However, a job loss or extended illness could ruin those good intentions. What would happen to you financially if you had to pay off the loan?
4. Why are you doing this?
This is not easy to answer honestly. Do you believe you need to provide financial help to show your love for your child? Will your financial support gain more attention and/or devotion? Some people use their financial support as a way of maintaining control over their adult children’s lives. Do you believe that by giving your child money you will be able to change his or her behavior?
5. How will this affect your relationship?
Proverbs 22:7 says, “The rich rule over the poor, and the borrower is slave to the lender.” When one person owes money to another, it changes the relationship – even between parent and child. That is why I often council my clients not to make loans to their children. Make it a gift. If you can’t afford to make the gift, you probably can’t afford to make the loan, either. Don’t let money poison your family relationships.
The greatest financial help you can give your children is to teach them how to manage money responsibly. This starts with learning to live below your means and saving regularly. Put off purchases until you have the money saved so you can avoid going into debt. Start investing early and invest regularly. The road to financial independence begins with learning the basic principles of financial management and then applying them every day with every financial decision that you make.
This is the legacy you want to leave for your children and your grandchildren. As for little Addison, I’m going to spoil the heck out of her … with love.
This article orginially appeared in Lancaster County magazine.
Illustration by Scotty Reifsnyder.