Why You Should Think Long and Hard before Lending Money to Family

We never stop being parents, not even when our children grow up, start their families and begin to shine in their respective professions. There is no doubt that this is a hard time to be a young adult starting out in the business world. Student debt is at an all-time high in the US, which can be difficult for graduates seeking to launch a startup, complete a post-grad course, or invest in a new home.

What are parents to do if kids ask for a lending hand? In this post, we discuss the sometimes difficult topic of loaning money to family, and put forward other ways to lend a helping hand.​


Why You Should Think Long and Hard before Lending Money to Family

Loans Change Family Mechanics

Your strongest instinct when family asks for money may be to pull out your check book, but financial experts suggest that loans may not be the best way to help out financially. For one, collecting from loved ones can be very awkward.

Secondly, the burden of indebtedness can change family mechanics, making borrowers feel that they have lost the equal footing they used to enjoy prior to the loan.

Finally, financial fortunes change and you may find that you need your savings to make an investment or to survive until your situation improves.​

Increasing Their Financial Savvy

Some parents feel that their main duty is to provide the best possible education to their children; once the latter are adults, is their duty to provide for themselves. If this is your ethos, you can still lend your children a helping hand by boosting their financial awareness.

You might decide to help them out with tuition for a finance or economics course, for instance, rather than hand them a lump sum to help them out of a bind.

If banks are refusing to give them a loan, help them by reading their credit report alongside them to spot possible mistakes. You can also make important suggestions on how to boost a credit score by keeping balances low on credit cards, paying off debt rather than moving it around, relying less on credit, etc. If you are a whiz at investing, share your knowledge with your children so they can boost savings with earnings from investments.​

Making a Gift

If you wish to help your children out with the deposit on their home, or with a small sum to help them launch a business that has a good likelihood of success, a smaller gift is more ideal than a big loan, because it is given with no expectations and is therefore unlikely to result in disappointment.

​Gifts do not have to be monetary; they can also consist of your time. Help your children out with chores, transport and babysitting to ease their load while they work to earn the money they need to start a business or pay their loans.

Every family is different and every parent has their own idea of how best to help their children. If you are worried about loaning money because you feel you may need your savings in the future or you are concerned your children may not be able to pay you back, consider other ways to help them out. Simply being there is often the greatest gift possible.​

Sarah Clark

Hi, I'm Sarah Clark. I like to write about mommies and their babies. Sometimes, even if I don’t, I like to hear stories from other mothers. I may not be an expert mommy by any means, but I am happy to share what works for mothers out there. I, for once, would like to build a community for mothers. And that's here in Giant Mommy.

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