Thanks to a sinking economy and poor spending habits, recent college graduates often struggle to get started. Should you pay off credit-card debt or student loans for your 20-something children? Co-sign a car loan or lend them money for the down payment on a home?
What about when older children lose their jobs or get divorced. For them, the stakes can be higher, including the risk of ruined credit or perhaps even losing a home.
MSN readers who've lent money to their children complain bitterly about ingratitude, missed payments and feelings of simply being let down. They're also concerned that their kids seem unwilling to accept that they may need to take a step down the economic ladder from time to time.
* Tell us: When should you give your kids a helping hand?
Survivor times two, for instance, was bitterly disappointed when her 30-year-old daughter spent the money she borrowed regularly on bingo rather than on groceries for her two kids. The ultimate goodbye gift from a child she hasn't talked to in over a year? The close to $20,000 she ran up on a credit card for which her mother had foolishly co-signed.
Accter, on the other hand, maintains that by helping him scrape together the down payment on his first condo, his parents gave him a much-appreciated head start — one that many of his friends missed out on. And his experience, it seems, is increasingly the norm.
Roughly one third of adults 18 to 34 receive some financial assistance from their parents, according to a study by the Institute of Social Research. During this time, parents can expect to pay roughly $2,500 a year on average to help their children transition to adulthood.
For many recent graduates, it's really a matter of necessity. Young people face a different economic situation than their baby boomer parents did. After leaving university with an average of $25,000 in student loans, a recent grad's employment prospects are generally low-paying, entry-level jobs, or resume-building internships, says Linda Perlman Gordon, author of Mom, Can I Move Back in With You? A Survival Guide for Parents of 20somethings.
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Using the term "adultescence" to describe this period of extended adolescence and dependence, Gordon believes that it's increasingly normal for otherwise adult kids to turn to Mom and Dad for financial aid.
And, as long as they show a sense of purpose and an independent identity, she says, there's nothing wrong with giving them a helping hand — within reason. There's clearly a difference though between a laid-off daughter with her own two kids and a younger brother that has yet to find a job.
I'm not saying don't lend your kids money, but consider what you're doing before signing the cheque. Here's a suggestion: Offer to match their debt payments for a time, rather than simply making the entire debt disappear.
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Go for equity, not parity. If you help your son, the potter, with a down payment on a house, you don't necessarily need to do the same for your pharmacist daughter. But don't expect them to see things the same way.
In many cases, everyone might be better off if you simply view the whole thing as a gift — particularly if the amount is fairly small. This way, they aren't at each other's throats.
Another solution might be to reduce the child's share of any potential inheritance by the amount of the loan. If so, be sure to amend your estate plan so that it's clear the loan was an advance, not a gift.
And if it really is a loan, structure it the way a bank would, detailing the amount borrowed, an amortization schedule, a modest interest rate and some conditions for repayment, including the expected payoff date. If you don't document things, you risk not getting paid back and have little recourse legally.
Toronto lawyer Les Kotzer, author of Where There's an Inheritance, talks about one widow who was forced to work two jobs after her husband died, largely because her children refused to repay the money she and her husband had lent them when he was alive.
Of course, it doesn't have to be that way.
"I'm not saying children are entitled to their parent's wealth but I am saying that a small, well-placed boost can completely change their lives and move them ahead several years in their financial growth," Accter maintains.
On that one, I think he might be right.
There is a difference in giving help to one who needs it & willingly repays, But 'to continue to lend' $ when you know it is used for something other than what you believed it would be used for (ie; bingo is not a necessity) or if your suspect it is not used as requested for: it is considered 'destructive help'. Learn to say NO.
But if they need food - buy food - don't give cash.
Keep a record of loans of either food, cash or bill payments etc & have them sign for the loans so you have valid proof of reason for repayment or reduced inheritance....
A fair & honest Son or Daughter or any other person would understand and be happy to accommodate your request. This is not a matter of whether you trust them or not. It (the matter of any type of loan) is a business deal. If they refuse: then they need to go elsewhere for their needs...
FROM MOM S.
my inlaws offered to help us buy a house almost 20 years ago, with the intent of the Mom living with us. They borrowed us $10000.00 down payment, and paid a 3rd of the mortgage. Mother in law ended up leaving after 8 months, we were not sure if she would be back. So we spoke to the dad and said maybe you should stop paying and we will go on our own. at the time house prices had gone down, so if we had sold it to pay them back, we would of lost money. He said pay me back when you sell it.
Now we paid half of the down payment back within a couple of years of that conversation. we have only just sold the house and went to pay him back the other half of the downpayment, when we were advised we owe him around $25000.00. So we worked it out had we of sold the house at around the time that he stopped paying and assumed we made $10000.00 and paid on top of the down payment a 3rd of that to him. He cashed the cheques in but then a couple of weeks later we got a letter from a lawyer demanding we owe $14000 but he would accept $10500.00.
We ignored the letter as we don't have that money.
Now we have had another letter, asking us to meet with a lawyer to come to some agreement rather than going to court.
We have brought another house now, and do not have any money to be getting a lawyer, we thought we were fair in what we have done.
He is calling us cheats and liars.
There is nothing in writing at all.
Any comments would be appreciated.