What to do if your adult chil­dren ask for money?

The ques­tions to ask be­fore of­fer­ing fi­nan­cial help to grown-up kids

The Times of India (New Delhi edition) - - TIMES PERSONAL FINANCE - RIJU ME­HTA

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.

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