Emotions of mothers or their children are hard to reason but simply being emotional and lending money to grown-up children can seriously affect your future financial condition, more so if you are a single mother. Therefore, there are a few things that you should consider when your grown-up child asks you for money.
Surely there is an element of tax benefits and perks when you lend money to an adult child, your spouse or any family member for that matter and therefore you may feel it is a very good idea. However, you will also have to consider a few non-income producing factors as well.
Lending money sometimes may free-up income earned by your child and they may even use these saved earnings for better investment purposes. They can contribute towards a tax-free savings account, deposit in a registered retirement savings plan, or can simply invest those dollars saved in any other registered plan.
However, there is a catch here. This tax benefit of lending is only possible and legal when your child uses the financial loan in something that does not make more money. A loan to rebuild the life of your adult child will not be considered as “producing income.”
Know Their Money Personality
If you are thinking about tax benefits, you will need to consider a few factors first before lending money to your adult children.
Firstly, you have to know about the money personality of your child before you lend money. Every child is unique and who else better than you know about this fact. This means a child will deal with the money received in unique ways as well. Knowing about the money personality and history with money will help you to base your decision to lend money on a solid foundation. Therefore, know whether your child is a flyer, does not care or think about money, worry too much about not having any of it and whether or not you are the only one to call when there is a need for money. Helping such a child by lending money will simply make the situation worse and perpetuates the cycle.
Don’t Have to Play Fair
You must know that it is perfectly alright if you do not play fair when it comes to the personal finances of your adult children. Giving them all and whenever they want or whenever you get money they all get it will not solve the issue either. You may lend money to one adult child and not to the other as long as there are ample good reasons to do so. This does not mean that you will give or withhold money simply to punish or manipulate your children but it is fine if you say no to one and yes to another. Offering equal amounts of love and an equal amount of money are two distinct matters.
Keep Money Matters Private
Always keep financial loans of the family private as everyone does not need to know who is lending, who is receiving, why the money is being lent and all other matters. If you have a partner who has put in an opinion, respect it and act accordingly when you lend money to grown kids. One can be a bit soft for one particular child while the other parent may like another. Not respecting other’s decision and lending money to your favored child may even cause conflicts in marriage. You may work out to find a compromise such as giving a smaller loan or offering any other kinds of support.
Learn Why They Need the Money
Find out the exact reasons for your kid wanting to borrow money from you. Find the legitimacy of such borrowings first and then lend so that you do not hurt yourself by taking care of the financial needs of your child unnecessarily. This will mean you will decimate your own resources by not wanting to see your child struggling with their financial needs. You can learn more at Liberty Lending about this matters and the ways in which you can lend money to your child in a more judicious and prudent way.
Know If You Can or Can’t Lend it
Know your affordability to lend money and never go overboard to help anyone. This will also affect your financial health in the long run. Your primary idea should be to protect yourself first which in turn will protect your children as well. Teach your children the importance of money and encourage them to save more money for the future.
Are There Strings Attached?
Also, find out whether there are any strings attached to the financial assistance that your child is seeking from you which is ideally the case in most lending between family members. The best way is to be as clear as possible humanly about the returns you can expect from such lending if not the consequences. Know for sure whether or not you want the loan to be repaid before you attain the age of ninety or not at all. Whatever it is always put it in writing.
Be Clear On Your Terms
Always be very specific and clear about how and when you want the money to be repaid and do not just focus on the interest rate and repayment timeline. Never feel bad or guilty when you put a few loan terms and that too in writing as any outside money lender will have done the same. Lending money to adult children can be a successful endeavor only when you as well as your child knows about the expectations clearly. Make sure that you work on arrangements that are helpful and reasonable to all and all agree to it willingly. Do not feel pressurized or make others feel that way. When you are very clear about everything right at the outset you will be able to avoid strife that may come with lending money to adult children.
Sign a contract or a promissory note to save the drama of miscommunication. There will be no hurt feelings, no expectations too small, and nothing missed out to protect you and your family when you have a clear communication. Setting boundaries will not reduce your objective, compassion, and love.