LENDING MONEY TO CHILDREN AND GRANDCHILDREN

LENDING MONEY TO CHILDREN AND GRANDCHILDREN

Should you or should you not lend or give money to your children? If we do give or lend, we want to be sure that we don't bring down on our unwitting heads the "Law of Unintended Consequences." Sometimes, the money we give or lend works well. But at other times, despite our good intentions, it proves to be, at best, a mixed blessing and, at worst, a disaster. The trick is to know when it is blessed to give and when it is blessed to refrain from giving or to offer something else.

There are a few questions you should ask yourself before you make your decision. Remember that you're putting at risk something more important than money. You are also risking family relationships - and you can't put a price on those.

Can loans overcome long-standing family tensions?
Can financial support induce children to adopt your lifestyle and values?
Can money solve children's personal and career problems?
There's another complication: our sons and daughters may feel ambivalent about accepting our help. After all, they were accustomed to getting money from us in their younger days. If we offer it, accepting our help may seem like the thing to do. And it may cause discomfort, especially if we let them know that we don't approve of how they're spending the money by asking questions like, "Did you have to buy a big car?" or, "You're taking a vacation now?" If they've accepted the money, they may not talk back or defend their choices, but secretly they could be angry or resentful or our criticism.

Even if we give without any judgments or conditions, our kids still may feel guilty. As one young woman said, "My parents give me no reason to feel they attach strings to their dollars, but I'm dismayed at the nauseatingly sweet way I thank them...and in the greedy way I sometimes secretly wish the check had been for more."

Mixing families and money is never easy, especially because of the hidden buttons we push. We're dealing with very complicated emotions that are sometimes expressed financially. "Money," says one psychiatrist, "is one of the common places where emotional issues hitchhike." And this is true both for parents and children.

Lending money doesn't solve old family grievances, entitle parents to try to manage their children's lives, or correct children's shortcomings. Money often does nothing more than paper over old problems or postpone decisions, sometimes beyond the time when constructive change is possible.

Money does not buy happiness. It does not cure all ills. It cannot turn the sow's ear into the silk purse. (Unwisely used, though, it can turn the silk purse into the sow's ear.) Is it a loan or is it a gift? You had better be clear in your own minds. If it is a loan, then make it clear that you expect to be paid back. If it is a gift, even if you don't want to call it that, accept in your own mind that you are not expecting to have the money returned.

It would be wonderful if you could tell the future when you commit yourself to making a gift or a loan. But you can't so you need to be very clear about what you are doing. Of course you trust your children, but how about their spouses? Are you sure that the marriage will last? Are you sure your situations won't change? Remember that your first responsibility is to yourself and the first maxim of parent-child money transactions must be never to jeopardize your own financial safety.

You do everyone a favor if you do not allow lending or giving money to become the source of continuing arguments between you and your partner. Don't poison the relationship between the two of you or make your children feel guilty or sad that they caused trouble. So both of you should agree, specifically, on how much you can sensibly afford to lend or give, when it should be done, and, if it's a loan what the terms should be.