Before you make a major loan to the adult kids, you have to ask yourself five serious questions.
The first question is the most important and obvious: Can you live without the money?
Assume you will never get it back. Any of it. Can you still maintain your lifestyle?
If the answer is No, just tell that to the kids. No explanations are necessary but you can remember this quote from Bobbi Rebell, author of How to Be a Financial Grownup:
"The best way to help out your kids is to never need them to help you."
But if you can afford it, ask yourself if making the loan is worth it:
1 Is this about their terrible money decisions and, if so, has the adult kid done something to change his/her behavior?
Say, for example, an adult child wants money to pay off credit cards that he or she foolishly charged up. If they haven't taken any steps to solve the problem themselves, then they aren't ready for your money. According to AARP magazine, loaning money on a problem that will drag out for years is probably not wise.
2 Are you invested in seeing that your kid won't fail? This not a good basis for lending.
According to money planner Peter Dunn, kids should fail. "Failure builds character, resourcefulness and guile," he writes. "Let failure be the teacher."
3 Can the borrower pay it back?
Just like a bank, you should expect to have the money paid back. If you are lending money you have a right to know what the borrowers financial situation is.
Will the kid be able to make payments? If so, and all things being equal, then set up in writing a promissory note with interest (it gives you more pull with the IRS).
4 Ask yourself if the kid will soon find himself/herself in trouble with cars, spouses, or leases. If so, this won't be the last time someone comes to the parent bank. Save your money.
