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Will Lending Money to an Adult Child Affect Retirement Planning?

We’ve discussed parents putting retirement planning before a child’s college education but what happens when a child who is well into adulthood needs your financial help?  Should you sacrifice the gains you’ve made through retirement planning to bail out your adult child?

In “Lending Money to Your Adult Kid,” Jessica Ashley starts off right away saying that it probably isn’t a good idea to do this, but acknowledges that “life is more complicated” than best practices, especially given the tough job market and uneasy economy.

Find out why the money is needed. The Bank of Mom and Dad has a right to research loans just like any other financial institution. Of course you want to help if your child is in trouble, but first find out if the request is due to reckless spending or some tough breaks.

Make sure you can spare it. Don’t lend the money if you cannot spare it. The article quotes financial expert Beth Kobliner: “Just like a flight attendant instructs you to secure your oxygen mask before your child’s, I’m telling you to secure your own finances before you can help your kid.”

Put it in writing. The bond between parent and child is sacred and you may feel odd about creating a written agreement to loan money to your child. However, you will be teaching them a valuable lesson in responsibility if you make your child accountable for money being borrowed.

Consider alternatives. If you don’t feel comfortable or aren’t able to lend your child the amount of money he or she asks for, think of other ways to help. You can offer gift cards to a nearby grocery store or agree to buy them a ticket to fly home for a visit during the holidays.

Be willing to let go. If, after careful consideration, you do lend your child money, know that no matter what is agreed upon, there is a chance you won’t get your money back.

Be an example. You can still demonstrate good money management and sound financial planning even when your children are adults.