Recently, one of my friends came to me with a dilemma. Her boyfriend, who is an engineer, was asked by his parents for $3,000. They’d recently bought a summer home and were having trouble affording renovations and the new mortgage. While his new job pays well, he barely makes enough to cover his rent and loans (like most recent college grads) so giving them money would mean cutting back on his loan or credit card payments. The boyfriend wants to help because he is grateful to his parents for helping him through college, and life in general, the request puts him in a sticky position.
Should he lend them the money?
7 things to consider when asked for money
What CAN You Afford? – If you do want to help, figure out what you can afford to give. Look at all of your expenses and separate needs and wants. This will help you see if you have the extra money to help your parents. If you look at your expenses and find yourself choosing between vacation and dinners out or helping your parents that’s a doable sacrifice. What you don’t want to do, is find yourself unable to pay your own bills because of your loan or gift.
Alternative Ways to Help? – In this case, $3,000 may be too much to ask. Harming yourself financially to help another (even your parents) shouldn’t be an option. But, that doesn’t necessarily mean you can’t help at all. Think about how you can help without sending money. In this case, offering to help with renovations is a good way to help without throwing yourself into debt.
Where Did Their Money Go? – What was their own money spent on? If you’re loaning your family member money the last thing you want to do is see it wasted. If you know your family member has spending problems offer to help without putting cash directly in their hands. Paying for rent, utilities, or even car insurance directly (instead of making the check out to them) is a great way to help while still knowing that your money is being used wisely.
Is This The Only Solution? – Don’t be afraid to talk to your parents about their situation. Ask your parents if this is their only option. Have they done everything possible before coming to you? Talk through your concerns and be open with your parents about your own financial situation. This will help you determine if the loan/gift is necessary and if they have other options.
Is This A Loan or Gift? – Make sure you and your family member are clear on the terms of the agreement. Putting the agreement in writing will help make sure both parties know the nature of the agreement. If it is a loan, make sure the interest rate and payback terms are included.
How Will This Affect Your Relationship(s)? – Lending money can create tension, especially if loans aren’t paid back. If you’re giving your family member a loan consider how this could affect your relationship if they do not pay it back. Will they constantly ask you for money? Will you be angry if they fail to pay you back? Also, think about how your spouse or significant other will feel about this loan. Lending money can be tricky, so you want to think carefully about it.
Pressure To Say Yes? – Saying no may seem impossible but sometimes you have to. If you’re only saying yes because they’re your parents, you may regret this decision later. Consider what your parents are asking for money for. Do they need money for car repairs to get to work? Do they need help paying for groceries? Or, do they want help funding a vacation or a luxury item? Say yes only when you truly feel your help is necessary AND are comfortable with the decision.
Children often accept extra help from parents, so children helping parents in their time of need makes sense to me. Even when your parents or family member ask for help, they still want what’s best for you. That’s why it’s important to make sure you’re not living beyond your means. No one wins if you end up in debt as well! If you do decide to loan money, be sure to read our tips on how to lend or borrow money from close ones. What do you think?