You've heard it--I've said it--over and over: It's a tricky and emotional business lending money to adult children. We want to be helpful--if we can afford it, and sometimes even if we can't. But we worry about why they are unable to manage on their own. That said, financial advisers speak as one in saying that if you do lend money to your grown children, do it like a banker would: review their financials; set the repayment contract in writing.
Ah well. Seems like such a cold thing to do when it's your loved one. Michele Singletary, who writes a syndicated personal finance column, also hands out that "get it in writing" advice, but her recent column on the subject of loans to adult children made two points about that lending process that may clarify your perspective:
On the importance of reviewing their finances:
Upon review of bank statements, you may find evidence that your adult child is living above his means, such as eating out a lot. Don’t lend money to people who earn enough to cover their expenses, but can’t because of mismanagement. That’s not helping. That’s enabling bad behavior. Why should they enjoy the fruits of your frugality while they are living it up?
On the need to find out why they're tapping the bank of mom and dad for loans:
This is not about being hypercritical of their lifestyle. Just because there’s a request doesn’t mean there’s a need. Perhaps your adult child is underemployed. Maybe your daughter and her husband bought too much house and need to downsize. If your adult child is constantly asking for loans, there’s probably an underlying situation that needs to be addressed. Your handing over money all the time prevents this analysis.