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Money Talks: What if I want to help my child buy a home?

It is often instinctive for parents to help their children in any way they can. When they are younger, it might be simply spending extra time on homework or giving them a first driving lesson.  As children grow into adults, they may run into financial trouble and turn to you for financial help.  In fact, a recent study shows that half (50%) of U.S. adults aged 18-39 who are not students are currently receiving/have received financial assistance from their parents1.

Before deciding to help an adult child, its first important to take a comprehensive assessment of your own financial picture.  Having a budget in place and understanding whether your retirement savings is on track will be an important factor.  It can be detrimental to help your adult child in the short-term if it comes at the expense of your long-term future.

Understanding your ability to help financially is only one of the issues to consider.  If you have multiple children, there is a precedent set that you will help all of them should they need it.  You also run the risk that helping one adult child may cause family friction if other children are concerned that a future inheritance is being spent on their sibling.  Consider how any current financial contribution to an adult child may impact their share of any potential inheritance later.  

Even when it makes sense to financially help your adult child it should be done prudently.   Continuing to fund their lifestyle in the long-term, may contribute to a lack of responsibility for their own financial lives.  A better option may be to have a formal “loan agreement” where funds can be repaid over a set period.  This will not only keep them accountable, but also potentially minimize the impact to your finances by creating a repayment plan.

Finally, you may want to consider some “non-monetary” ways to support your adult child.  Perhaps you could offer a used family car that you no longer need.  You might draw on your professional connections to help him or her secure a higher-paying job.   You could also offer to watch grandchildren or pets so that your child can actively apply or interview for a new job and/or work extra shifts.

A parent’s devotion and willingness to help their children stems from a special relationship developed over a lifetime.  The decision to help financially can often be an emotional one that is influenced by this special relationship.  Let us offer some assistance by taking an objective view of the situation and helping you plan a course of action.