Secrets are dangerous. Money secrets can be the worst kind for families. What should you do if you have a child struggling financially or just needs a helping hand when it comes time to buy a home?
The trend toward “boomeranging” among newly minted college graduates to return to the family nest is a well-known phenomenon. With persistently high unemployment and an ongoing crisis in real estate, it’s now not uncommon to hear of adult children with families of their own seeking a helping hand from parents.
This is certainly not something that was on the radar screen when thinking about retirement. But more often I’m hearing of parents at or in retirement helping out their adult children who in turn are trying to help out their college age kids, too.
In the past, when I was a mortgage banker I would often need to ask about the source of a down payment for a home purchase. Many times I would hear that mom and dad or a grandparent or uncle would be helping out to fill in the gap. Sometimes I would make the suggestion and probe to find out if there was any chance for a family gift.
Because of lending rules, there was a certain way that such gifts needed to be documented. On more than one occasion, I would find a family member who was not just reluctant but downright belligerent about sharing any information needed to document the gift.
Other cultures while just as secretive were more willing to provide such a helping hand. I found that it was especially common for those who were part of first generation immigrant families to gift money to family members literally from money stashed away in coffee cans and mattresses.
Many people may find it easier to talk about health or sex problems than to talk or share information about money.
Unfortunately, this kind of climate perpetuates poor money management skills.
If you’re in the fortunate position to have extra resources to help a child or family member, then you should consider it a “teaching moment.”
Yes, there are those who will say that it’s your money and you don’t have to tell anybody about what you’re doing. But consider this: You could be sowing the seeds of some kind of rift between family members if not know then later when you pass away.
The key here is communication. While you don’t have to tell your children to the penny what kind of gift you’re planning, you should inform them so as to avoid hard feelings later. Your kids probably know that you wouldn’t offer if you couldn’t afford it. They may even recognize that one child is in tougher straits than others or that they have other resources as a safety net such as their own in-laws if need be. But don’t assume anything. If they have your best interests at heart, then they may just want confirmation that you aren’t putting your own financial security at risk.
Back to the teaching moment. Here is an opportunity to ask questions that may help them think about what they are doing. Are they short on cash because of something beyond their control or do they have trouble handling money? Are they gambling or overindulging? You could impart some added wisdom from experience here such as when my aunt told my mother about how she always saved any raises she got instead of counting on it for spending money.
I’ve had a couple of clients who invested money in their son’s businesses. Each formalized it with a loan agreement and an equity stake. If it’s a business, then treat it like one.
If it’s help for a home purchase, you could help provide some perspective. Is this really a good neighborhood to invest in? Are there problems with the property that will become an issue when trying to resell later? (Think here about the time you bought the house with the shared driveway).
Remember to be equitable with your family. You don’t have to offer help in equal amounts since every child’s circumstances is different.