No one ever said parenting was easy. That said, some parenting issues can be much harder to navigate than others.
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What do you do, for instance, if your grown child is struggling under the weight of serious financial problems?
Every family and every circumstance is different, of course, but the dilemma many parents face is the same: Should you or should you not come to the rescue?
1. Assess the situation objectively. Is your child seeking financial help from you for the first time – or for the tenth time? If this is an unusual emergency beyond your child’s control – caused, perhaps, by an illness, a job loss or a divorce – that’s one thing. But if your child consistently shows a lack of spending control or has addiction problems, a different kind of help may be needed.
2. Ponder the consequences. You could be opening a messy can of worms by getting involved in your child’s financial affairs. Brace yourself for a barrage of strong emotional reactions – including guilt, resentment and anger – on both sides. But if you feel confident that you can discuss money honestly together, then it might be OK to proceed.
3. Set clear limits. If you do decide to help financially, be clear about how much you can do. “If people know the help is temporary, that’s more of an internal motivator to right the ship,” said Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. Richard suggests helping with bills for a set time period – say, three months – or giving the child a percentage of the total amount he or she needs.
4. Keep your finances separate. It’s not a good idea to add your adult child’s name to your credit cards or establish joint accounts together – especially during a time of crisis. Studies have revealed that up to three-quarters of all cosigners are asked to repay loans that go into default.
5. Decide between a gift and a loan. You could eliminate future stress if you can afford to give your child a gift rather than a loan. You can give a tax-free gift of up to $12,000 to an individual. If you give a loan, though, document everything and draft an agreement that you both sign.
6. Know where else to point your child. Your child also could get free, confidential help through Debtors Anonymous. This 12-step program provides support and guidance in a manner similar to Alcoholics Anonymous.
7. Consider credit counseling. Your child also could get help through a reputable credit-counseling agency. You can be connected to agencies that have made a commitment to certain professional and ethical standards through the National Foundation for Credit Counseling (or 1-800-388-2227) and the Association of Independent Consumer Credit Counseling Agencies (or 1-866-703-8787).
8. Know what to expect. A debt-payback plan devised with the help of a credit-counseling agency can take as long as two to five years to complete. If your child ever misses any payments to the agency, the agency may require full debt payment all at once. This move could force your child into bankruptcy court.
9. Help in other ways. If you suspect that your child is dealing with chronic money woes because of larger issues beyond your expertise, you could direct your financial help toward rehabilitation or counseling. If he or she refuses such help or fails to change the behavior, it may be time to resort to the tough-love approach.
10. Start the training process early. To help prevent future problems, Richard and other experts recommend that parents give children an allowance from an early age and then let them manage their own money without bailing them out. The idea is to let them learn from their spending mistakes while they’re young and the stakes aren’t too high.
Sources and resources:
- Institute of Consumer Financial Education
- Financial Planning Association
- Consumer Reports Money Adviser
- Internal Revenue Service (PDF file)
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