Smart Ways to Give (or Lend) Money to Family
Parents spend more than $500 billion annually assisting young adults with student loans, housing, groceries, car payments, cell phone bills and other expenses, according to a recent Merrill study. For many families, that largesse is in the form of a gift, but some parents may call it a loan--and treat the transaction as a lesson in money management.
When gifting or lending is done right, it can help young adults get a first home, a car or a college education that they otherwise wouldn't be able to afford. Or the money may be just what a relative needs to get back on his feet. But done wrong, handouts can undermine a young adult's independence and generate hard feelings among other family members who don't get gifts or loans. If it's a loan that's never repaid--whether you wrote the check or co-signed for a loan from a lender--it may create a lasting rift with the borrower and potentially leave black marks on your credit history.
Giving or lending money can also affect your lifestyle and plans. Jennifer Myers, a certified financial planner in McLean, Va., says she usually runs projections for clients on how a potential gift--or a loan that might never be repaid--might affect their ability to retire when they want. "You have to make sure you can afford to help that family member or friend and still be financially secure
