Loaning Money to Your Child

What if an advance on an allowance just isn’t enough to help your child out? For example, what if your teenager wants the latest electronic game platform that costs a few hundred dollars and he doesn’t want to wait until he gets his birthday money from Grandma? Should you become a banker and loan the money to your child?

You have three choices:

  • You can say no and refuse to help. Maybe you’re saying no because you don’t want your child to have the money. Or, maybe you just can’t afford to help. Either way, it’s an important lesson for your child to learn that, as the Rolling Stones have said, “You can’t always get what you want.”
  • You can give the money that’s wanted without asking for any repayment. Here you’re making a gift, not a loan. You might want to label the gift as a reward for something—making the honor roll or getting the lead in the school play.
  • You can make the loan and set conditions. For example, you can insist on interest or make the loan interest-free.

Say yes in these cases:

  • The money is needed for a good reason
  • You believe your child is responsible enough and able to repay the loan
  • You can afford to make the loan

Say no in these cases:

  • You disapprove of your child’s use of the money
  • Your child is becoming a chronic borrower
  • You can’t afford to make the loan
  • You’d create problems within the family

Source: http://life.familyeducation.com/money-and-kids/parents/48182.html?detoured=1

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