No formal application, no interest, and no credit history check- sounds like a pretty sweet deal, right? In most cases, this describes the Bank of Mom and Dad. Too often, parents are left in a financial dilemma by giving out zero interest loans to their children, or in some cases, just giving out free money.
As parents, you want to give your children the world and help them through all stages of life. Ultimately, there comes a time when the support you give your kids needs to shift from financial to emotional support. This begs the question, when do you shut down the “Bank of Mom and Dad?”
Children returning home after college or continuing to live at home through college is very common. However, parents should first have a discussion with each other about the feasibility of this, and then have a chat with their child. Communication has to be clear and expectations laid out, to ensure your child is clear on how much financial support will be provided and for what time frame.
Charge Rent...Or Insist on Contributions
Charing rent is beneficial in covering the increased cost of having your child live back at home. It's also a good way to teach your child about budgeting in order to prepare them to be self-sufficient in the real world. If parents don’t need the extra cash financially, another option would be to keep all of that “rent” money in an account and hand it over once your child moves out to help them get their independent life started.
If rent isn’t practicable for your child to afford, insist on other contributions to the house, such as covering some extra groceries or utility bills. If your child is struggling to find employment, assert that they need to help with chores around the house, such as cooking meals, doing laundry, cleaning, etc.
Your Retirement Fund is Yours
People nearing retirement shouldn’t feel obliged to take from their own savings or retirement fund for their adult child. Although this may seem harsh, there comes a point where parents shouldn’t hinder their own retirement plans to help their children.
Education is Key
Instead of just providing for your child while they are home, consider teaching them some important financial lessons. Some important lessons any dependent young adult needs to learn are how to save, how to set a budget, how to build or rebuild their credit score, how to avoid debt, and why it is important to plan early for retirement.
Most importantly, remember there is no “one size fits all” solution. Every family has their own financial and emotional circumstances that come first. The main point for parents is to do what you can to help your child become financially independent, without harming your ability to retire.
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