Scratch a financial adviser and you get this answer: If you can afford it and you're going to lend money to your adult child, put it in writing. Sign a contract that lets your child know what the repayment schedule is, when you expect to get your money back. That makes it more of an arms length operation.
While I was doing some research on the topic for USA Today's The Best Years, I came across a financial planner whose advice took a different tack--one that resonated with me. Personally, I could never see myself asking one of my children to sign an IOU. It just doesn't fit or sit right with me.
If you can afford to make the loan, what did Marty Kurtz, have to say? "I'm not real crazy about lending kids money. It's okay for smaller amounts. But why would you loan for bigger amounts? It puts you in the position of being a debt collector and that’s going to impact your relationship." As Kurtz sees it, big loans are what banks are for. If credit ratings are a problem, you could go to the bank with your child and co-sign the loan. Yes, you're on the hook if he or she defaults. But as Kurtz points out, if you made the loan yourself and your child failed to pay you back, you would be in the same position. At least with a bank, it can put the repayment screws to your kid.
There is the option of making a gift of the money. If you want to "teach the virtue of diligence," Kurtz says, you can make it a gift with strings. That, Kurtz says, is kind of like a bribe, but it can be very effective.