As we welcomed in the new year of 2020, our adult kids were on a steady financial path: working, paying their rent, fiscally independent. Or they might have been in mid-struggle but showing promise. Then along came the coronavirus pandemic and its devastating effect on the economy. Our adult kids may now be in financial trouble. Some have moved home to shelter with us--and to save money on rent. Some are keeping their physicial distance but asking for tide-over loans.
Should we apply the same rules to helping them out now as we did pre-disaster? Is the Coronavirus crisis a time for stronger-than-usual doses of compassion?
To judge by anecdotes that are on the loose in the media and statistics from Pew, whose pollsters follow inter-generational issues, most of us are welcoming--or allowing--our grown kids to move back in with us. More about that fiscal helping hand in a future post.
What about a loan to help them survive during a failing and flailing economy? According to a survey by Commonwealth taken in the relatively optimistic days of April, more than half of Americans are worried about the virus’ impact on the economy and their financial lives.
If one or more of your grown kids needs help in these extraordinary times, here are some points to pop into the decision hopper:
A run on the Bank of Mom and Dad. That is, one of your grown children could ask for a loan that's a reasonable request and that you want to fill. But our finances have their limits. Are there other children or close relatives--a brother, a parent--who might need help as well. A loan should be seen in the context of how much you can afford to lend and how many key borrowers might have needs.
Lower expectations. You may want to make the loan a loan--not a gift. You may even write out a loan agreement with interest rates and repayment schedule attached. But gird yourself for disappointment or, better case, lapses. These are truly hard times, even panicky ones for those who don't have money in the bank but do have a family to raise--even if income has been reduced or jobs lost. Unexpected expenses and setbacks happen. If we're the ones with resources that can survive a hit, we may not like it but we should be prepared to realize the hit may be permanent. Here's a word of advice from a financial counselor: If it's a loan and not a gift, formalize it with a note about terms and then let it go. "Don’t bring it up at holiday dinners. Don’t give reminders. If you can’t do that, we suggest you not make the loan at all.”
Guarding against a default. Repayment is a bigger issue than ever (see above) but if you've been more generous than you can afford to be and this is money you absolutely need repaid, let your borrower--your grown child or other relative--know the financial reasons in detail. It helps to share why you need this money back, what it has been earmarked for, what setback you would face if the money isn't repaid. Nothing beats communications and transparency.
Sibling rivalry's ugly head. Lending money to one child may make the other feel left out, or loved less, or that their eventual legacy from you is being diminished. They may figuratively stomp a foot and whine, "It's not fair!" All kinds of ugly thoughts and emotions can rise up and strike our kids. Which is not to say such behavior should be honored. Instead, try a pre-emptive strike via communication about why you're doing what and how it will or will not affect the non-borrowing child. It won't hurt to mention the stress we are all under during this national crisis.
A grudge against your spending habits. If they're in need and have to pay you back--or if you decide not to help them out--resentments about how you spend your money can pile up. They may point an accusatory finger at your going on a covid-safe vacation or buying a new car. What do the experts advise? It's your money to do with as you wish. But you might want to reassure them you're not going to let them starve.