Financially Helping Your Adult Children
Helping someone obtain his or her financial goals can be very rewarding, especially if you are helping your own child. When your adult child asks for financial help, they can be difficult to refuse, however, you need to be careful. Every child (even those within the same family) is different, and you’ll need to assess each situation individually. If your normally responsible child needs help, that can be a very different situation than a not-yet-independent adult child needing financial help yet again.
If you feel that your normally responsible child needs help because of an emergency situation, you may consider assisting them, especially if you and your spouse are in agreement. Be very clear with your child about the kind of assistance you are providing, as well as the terms of that assistance. If you offer a loan that must be repaid, discuss loan terms prior to giving any money.
However, if you find that your adult child needs help yet again because he or she isn’t financially responsible, providing them financial education rather than money is going to help them more in the long run. Try to talk with your child about developing a long-term financial plan as well as possible solutions to their short-term problem. Constantly providing your child with the money they request will not teach them financial responsibility.
Be especially careful if your child asks for help cosigning a loan. Cosigning a loan carries many risks and very little reward. In fact, many financial experts believe that you should never put your name on someone else’s loan. As a parent, however, it can be hard not to help your own child. If you have been asked to cosign a loan, understand the risks before you sign on the dotted line.
You are responsible for the debt
If the primary borrower does not pay the debt as agreed, for any reason, the creditor will hold you responsible. You should not assume that the lender will pursue collecting from the primary borrower if the borrower in unresponsive. In most cases, collectors will seek payment from the person who offers the best chance of recovering the money, which is likely to be you, and if you do not pay, you could be sued.
Your credit report may suffer
Any late payments made by the primary borrower will appear on your credit report. This is true even if you were unaware that late payments were being made. In addition, the cosigned loan could change your debt-to-income ratio, making it harder to qualify for future credit.
Cosigning does not equal ownership
It is a common misperception that cosigning a secured loan entitles you to ownership. However, if you cosign a loan for a vehicle and your name is not on the title, you are not entitled to ownership of the vehicle. This is true even if you are the one making payments.
The decision to cosign a loan for someone comes down to this: Are you willing to pay the debt? If you are not willing to assume totally responsibility, you should not agree to sign for the loan. There are other options—you could offer assistance in a different way, one that may help your adult child get back on his or her feet in a more responsible way.