Some of us tap into our retirement accounts or we delay retirement: We need the money to keep up with the relentless press of supporting our grown kids. Or grandkids. It may not be full support--just help with the rent, the cell phone bill or car payments. Sometimes it's a monthly stipend to defray their cost of living. For one of my friends, it was to pay for a major expense--the cost of a surrogate mother so a daughter could start a family. (The ensuing twins, priceless.) Another couple played venture capitalist and put money into their son's daring new business--which has since attracted real-life, Silicon Valley venture capitalists.
Whatever it is we're doing--and with whatever rationale we have for doing it--there comes a time when we want to or have to close the bank of mom and dad. The tipping point is different for every family; let us not judge our neighbor.
That said, when Closing Time comes, here are some tips from financial experts on how to tighten the fiduciary fist.
Set boundaries: One end of that boundary is to Just Say No. Make it clear that you will not provide assistance anymore. But if that isn't going to work for you--if it's too harsh or doesn't fit your situation--set financial boundaries, such as how long this will continue and how much cash will be involved. In some situations, you're doing yourself and your kin a favor. When support continues into a grown child's 30s and 40s, you may be an enabler: preventing your kids or grandkids from becoming independent and living within their means.
Make it legal: If you decide to be the mortgage banker for your grown child's home purchase, act like a bank. Have a lawyer draw up a contract complete with dates when payments are due. Of course, you don't have to be the banker--for a mortgage or other large loan. You can walk your grown child into a bank--and even co-sign the loan (if you're sure you don't need to be paid back). That way, the bank is the debt collector, not you. Financial experts note that people are less likely to repay family members than they are a bank. Many of us do help out with the first-home down payment--not because are kids have been spendthrifts but because of student debt. Student loan debt seems to be the biggest obstacle standing in the way of young people buying their own home.
Use it to educate: However much money you decide you can afford to shower on your kin--a grown child or a grandchild--it should be a gift with no strings attached. Yes, they may squander it, but even grown children need to fall down and scrape their knees. Gifting them money that they may use unwisely is better than using your credit card to bail them out.
Get a second opinion: If you're lending money for a new or on-going business, don't limit yourself to your and your child's take on the business plan. Get an opinion from someone not directly involved in the business. And agree to specific terms--how much and when it will be paid back (if you hope to be paid back).