What to do if your adult children ask for money?
The questions to ask before offering financial help to grown-up kids
Money is known to mar the best of relationships. The conflict over cash could invade the privacy of spouses over something as innocuous as spending habits, rend the sibling bond over a legacy leading to legal disputes, or rip apart a friendship over borrowed money. In this column, we explain what you should do if your adult child seeks financial aid. Should you give him whatever he asks for? Or should you simply decline? Here are the six questions that will help you take a decision. Is it a one-time help or has it been a frequent demand? Your decision should be based on the child’s track record regarding such demands. If this is the first time or a rare instance that he is asking for money, you could consider it. If you know him to be facing a financial crisis, or is in a phase of life where your assistance could set him up professionally, you can offer the money, but on the condition that it is returned in a pre-determined time frame. If, on the other hand, this is only one in a long list of monetary demands that have sprung up from time to time ever since he achieved adulthood, it’s high time you put an end to it. Is it likely to impact your retirement? This is probably the most crucial question to ask yourself. If you do not have spare cash and dipping into your savings could slash your retirement corpus, you should politely turn down the request. No startup or business venture is worth jeopardising your retirement. If the child needs the money to tide over a crisis, suggest alternate sources: he can monetise his assets by taking a loan against his securities, insurance or gold; he can sell his less important personal assets; use his credit card to meet an emergency; or take a personal loan. He will probably have enough time to shore up his depleted resources, but you may not be able to do so if you have a few years left for retirement. Also, he can take a loan to meet his financial needs; you can’t do the same to fund your retirement. Is the money for a life-threatening situation? If this is the case, no parent can say ‘no’. In case of a medical emergency, parents would willingly empty out their coffers for their progeny. A better option is to be prepared for medical crises and advise the child to buy adequate health cover. If such an option doesn’t exist, try to monetise your assets first. However, if the money is for acquiring a big financial asset like a house or a car, make sure it is offered as a loan and that you retain the joint ownership for the specified asset. Also, lay down the terms of the loan, regarding amount and time, clearly. Should the money be given to children as loan? Except for medical emergencies, all funds offered as assistance to an adult offspring should ideally be in the form of loans. If you have empowered the child to earn his own living and establish himself professionally, there should be few occasions for him to run to you for financial help. Avoid being the financial crutch for your child and let him meet his own financial challenges or find solutions to the crises. Should you have a written agreement? If the sum you are offering your child as a loan is large, make sure that you draft a legal agreement, clearly delineating the loan terms, including the purpose of the loan, exact amount or principal being offered, interest rate, time frame for repayment, options in case of defaults, and any other conditions you want outlined. Even if the loan amount is not big, have a written contract in place to avoid family disputes later on. Both the parties should have a copy of the agreement and it should ideally be framed with the help of, and in the presence of, a lawyer. Do not be carried away by emotion and treat it as a business transaction to avoid an unlikely fallout at a later date. Are the other siblings aware of it? While the level of privacy involving the financial help to an adult child may depend on the dynamics of the family, it is advisable to keep the other siblings in the know to avoid family disputes over inheritance. Also, if you are not in a position to offer the entire sum yourself, the other siblings could be asked to join in and reduce your burden. Make sure, however, that all the transactions are in writing and all the parties have a copy of the agreement. In fact, you should also include the details of the loan in your will, so that if you die before the money is repaid, the amount can be deducted from the child’s inheritance and there is no ill-will involving other siblings.