Do’s and Don’t’s of Bailing Out Adult Children
75% of parents supported adult children with living expenses or paying their debt reports CreditCards.com.
That is money, you may not see again. That is money you may need for your own retirement. Will the adult child you are bailing out, help you in your retirement years?
Before you write a check:
- DO ask specifically what the money is for.
There is a delicate balance between not embarrassing your child over their financial ‘crisis’ and cutting off communication when they encounter other ‘life’ situations.
Yet it is also important to know if your child needs support because of something beyond his/her control like a car accident, serious health issues, or an unexpected job loss. Or do they need help because they are struggling with basic adult responsibilities. Are they making poor budgeting decisions or settling for underemployment?
Be tactful, but get to the root problem before you decide if your money is the best solution.
DON’T throw good money after bad.
f you decide to help, DON’T hand a check directly to your child. DO pay their rent directly, or their loan payments.
- DO make a list of ways you are currently supporting your child.
You might be surprised at how much you are already helping your adult child. Are they on your family cell phone plan? Or piggyback on a Netflix subscription? Are they on your car insurance because it lowers their rate? But what is it doing to your car insurance rate?
Are you helping with larger monthly expenses like student loans or car payments? You may not be able to pull this plug if you have co-signed any loans.
DO get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child. You both might be surprised at how much it adds up to be.
DON’T loan what you can’t afford to give. The loan may become a gift.
DON’T co-sign a loan you can’t afford to pay yourself.
- Do put the loan terms in writing.
This can be uncomfortable. But do you know any bank that’s going to loan your kids money indefinitely, charge no interest and ask for no repayment. Then why should your money be subject to such lousy terms?
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing, including a repayment schedule. Both parties need to sign the agreement and retain a copy.
DON’T loan the money before you have a loan agreement in writing and signed.
- DO tie a loan or gift to financial education.
Financial literacy is missing in most high school and college curriculum. This knowledge gap could be the reason your young adult is struggling.
Housing and transportation expenses can be a shock to recent college grads. You may help your child in this transition – having transportation for work is important. A transit pass or used car can work effectively.
Dave Ramsey Financial Peace University is available in most communities. It is also available on line. Check out Dave Ramsey’s link: https://www.daveramsey.com
DON’T cave or enable financial dysfunction in your adult child.
It may be time for Tough Love. Your child needs to learn to be a responsible adult, as painful as that may be.
You don’t want them attending a budgeting class at age 60 because they are in financial trouble- near their own retirement.
Or burn through the inheritance you left them. And now they are living in their car.
Unfortunately, I have seen both as results of enabling financial dysfunction in children.
DO use me as your back-up. Tell your child ‘My Financial Advisor advises against a gift or loan at this time.’
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