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Tough love when grown kids ask for money

When adult children ask their parents for money, it creates a quandary: To give or not to give? For T. Scott Gross, a motivational speaker and management training consultant in Knoxville, Tenn., the choice is easy: "My answer starts at no, then hell no, then, over your dead body," he says. Such an answer is nothing new for his grown son. "Because we made him financially responsible for himself at a young age, he learned to go out and earn the money that he needed to get what he wanted," Gross says. Many parents may want to say no to such requests, but don't know how. Others can't decide when to say yes and when to say no. Financial experts advise parents to first think about whether they can afford the gift or loan. With retirement costs skyrocketing and life spans increasing, even people who consider themselves wealthy may find themselves running short on cash as they age. Then, parents need to ask themselves some hard questions about their own motivations in providing help and assess their child's motivations in asking for help. "We distinguish between financial assistance that will aid in making an adult child more independent and assistance that will just enable that child to remain dependant on the parent," says Eileen Gallo, who authored "The Financially Intelligent Parent" with her husband, Jon Gallo. "But still, if you can't afford to help, don't do it." Jeff Fishman, an independent financial adviser in Los Angeles, agrees. "No matter what steps you take to secure your own retirement, having a dependent adult child or children is one thing that can absolutely torpedo your retirement," he says. "Many parents have a hard time distinguishing between their children's wants and needs and spend way too much money fulfilling their wants." Can you afford it? Any money you give or lend your children should be beyond what you need to maintain your lifestyle and meet your goals for saving, which should include an emergency fund and substantial assets saved for retirement. Most experts recommend that you save between three and six months of your salary in an emergency fund that you can dip into, should you lose your job or experience some other type of financial emergency. Take a look at your living expenses and ongoing bills as you weigh your ability to afford a gift or loan. If you are struggling to make ends meet every month and owe money on your credit cards, you probably shouldn't be giving away money. While having to say no to a child in financial need is difficult, putting yourself in a precarious financial situation won't help. In such a case, you may need to be cruel to be kind, because bailing your children out of financial messes isn't usually the best course. "Parents should approach financial tough love with the attitude that this is a learning experience, perhaps for everyone involved," says Carolyn Kaufman, a psychologist and professor at Columbus State Community College in Ohio. "Adult children who continue to ask for money from parents haven't yet mastered the ability to manage their own money and many won't until their parents force them to do so." Family backgrounds Everyone is profoundly influenced by the financial attitudes of his or her parents and even grandparents. Every family has its own belief system about money and those attitudes frequently cause conflict in family relationships between spouses, siblings, and parents and children. "We all have our money scripts," says Ted Klontz, who authored "The Financial Wisdom of Ebenezer Scrooge: Five Principles to Transform Your Relationship with Money" with his son, psychologist Brad Klontz. "Many of us never stop to think about where our ideas come from about money and how to go about separating the emotions from the thoughts," he says.

In the case of the parent-child dynamic, parents can unconsciously use money to control their grown children and children can use continual requests for financial assistance as a way to avoid growing up and taking responsibility for themselves. Frequently, financial gifts come with unspoken conditions, Jon Gallo says. He advises a couple to first talk out any request for money from their grown children. If they decide to give or lend money, make any conditions clear from the outset. Yes or no Handled correctly, either a no or yes in response to a request for money can enhance the relationship between a parent or parents and child. Handled incorrectly, the relationship between parent and child can suffer great harm. Parents should consider several factors as they deliberate. Several factors parents should consider: • Any financial history. What financial assistance have you provided to your children in the past? Has it been in the form of loans or gifts? How has the child used the money? • Siblings. How will your other children feel about you giving or lending money to siblings? Have you treated, or do you intend to treat them equally when it comes to gifting or lending money? • Conditions. Do you want to attach conditions to the gift or loan, such as what it can be used for? Will you make the gift or loan formally or informally? Parents should discuss these issues together before reaching a decision, and may also want to consult with their financial adviser. Either way, parents should stay on the same page when it comes to the request as difficulties can arise when one parent doesn't want to provide financial help and the other gives money behind his or her back. Gift or loan Frequent financial gifts or continual support have the effect of creating and prolonging financial dependence on parents and can also bring parents to their knees financially. Klontz recalls a couple he counseled who were running through hundreds of thousands of dollars to support their three children in lavish lifestyles. Looking at the numbers, they figured that their original $11 million nest egg would be spent in a matter of years. "After working with us, the couple were able to tell their children that they would stop their financial support within the next six months and that no further financial support would be given unless their financial adviser signed off on the request," Klontz says. "That way the kids had some time to deal with the change in circumstances and within a year or two had sold their expensive houses and moved into something more affordable." Loans, when handled correctly, can work to the benefit of both parent and child. Dr. Glenn Whitman, director of transplantation at Temple University Hospital in Philadelphia, has lent money to each of his three sons through a third-party company designed to facilitate such services, Circle Lending. Five years ago, his eldest son Arthur was in a bind -- his nonprofit, the Ghana Education Project, needed funds. Dr. Whitman wanted to help, but already had maxed out his budget for charitable giving for the year. So he turned to Circle Lending and with the company's help, devised a loan agreement that would help both parties. The experience was so successful that he repeated it when his son Nathanial needed money for a down payment on a house and his other son, Isaac, needed help with medical school living expenses. "When you see your kids, you don't want to be saying to them, 'You owe me money,'" he says. "Circle Lending takes all of that out of the picture -- it prevents me from ever having to deal with it." While many attorneys will draw up lending agreements between family members, Circle Lending will also handle the administration and collection of the funds you lend. Advice and the actual drawing up of an agreement is available for a flat fee of $99 to $599, depending on the type of loan; servicing is $9 a month, according to vice president Jim Smith. Lenders have lots of flexibility when setting terms -- they decide whether a grace period is permitted and are consulted if the borrower encounters a financial difficulty and can't pay. In such a case, the lender can decide to add payments on to the end of the loan term, forgive payments or take interest-only payments.