How To Handle Lending Money to Your Children

Apart from banks, governments, companies and all the financial entities you can think of, who else can and might lend you money? Yes! Mum and Dad. When young and without responsibilities,the bank of Mum and Dad is the furthest from your worries. However when the roles are reversed and your kids turn into adults, it might be worth thinking twice before rolling over the cash. The parent then has to decide between lending money and helping out their child or allowing them to discover the real world on their own. To no one’s surprise, most parents do end up loaning money to their children, and of course, most of that money is never paid back.

lending money

Students (dat me) need help nowadays more than ever as house prices are rising, rents are expensive and tuition fees are high. However, according to the Daily Mail, lending money could cause problems in the future. Most parents are taking money out of their pension, making cuts and writing off most of the loan, making the money essentially a gift.

Gifts are great and we’re all eternally grateful, but it’s not much use giving your children money if in the end you will be needing their support in the future. Especially if you take into account the cost of care and having to constantly rely on someone else.

So how can you lend some money to your children without harming them or yourself? Scroll down for the info.

Lending tips:

  • Analyse how the loan will affect your own finances in the future. Is it an amount you see yourself surviving without? At what age would you need that money back?
  • If you are sure it’s a loan and not a gift, set down some terms. How will they repay you? Monthly? In a few years? What factors are they depending on?
  • Should they pay interest? How much? Write it all down and get both of you to sign it. You’ll be glad to have done it if any disputes come up.

parent discussion lending money

  • If you are considering giving your children a gift instead of a loan, it’s better to get some independent financial advice to make sure your financial security won’t be affected by the gift.

 

Offering some financial help to your children is understandable for parents, and is not to be discouraged. However it is important to take into account all kinds of factors and how it could affect both you and your childrens’ lives. If you both sit down and have a discussion on what are the different needs and possibilities, a mutual agreement means cooperation and no disputes.