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July 4, 2016

Should You Ask Your Parents for Financial Help?

Should You Ask Your Parents for Financial Help?

Many people are hesitant or even embarrassed to ask for help, particularly financial assistance. The situation can be especially touchy when the people you’re thinking of asking are your own parents, particularly if you’ve been adamant about establishing your own independence.

Let’s face it: money is not just a simple medium of exchange; all too often it carries emotional weight as well. Money (or lack thereof) can be a profoundly sensitive subject, affecting some of our closest relationships for better or worse. Married couples often fight over money, as do parents and kids. It’s little wonder that many young adults – especially those who have supposedly been “on their own” for a few years – have trouble asking their folks for financial assistance, even if they are in desperate need.

Separating the moochers from the truly needy

It doesn’t help that society often stigmatizes adult children who turn to Mom and Dad for a little help. For that matter, we look askance at kids who still live at home with their parents past a certain age, despite the fact that a sour economy has rendered prolonged living at home (or moving “back home”) the new normal.

Granted, there are those who take unfair advantage of their parents, whether or not they’re still living under their roof. These people are, to put it bluntly, moochers, and they’re not doing themselves or their long-suffering parents any favors. Many older people have financial challenges of their own – medical bills, inadequate retirement savings, and a dwindling net worth – but they still can’t manage to say no to their offspring.

It’s not just a problem with recent graduates, either. Throughout the US and in other affluent countries as well, increasing numbers of parents are supporting their adult children and their children’s families. Some may feel they have no choice, and almost certainly they do it out of love as well as a sense of obligation, but the result is that these supportive parents are compromising their own financial well being and may be spoiling their chances of retirement.

Even so, there are circumstances in which it may be appropriate to ask your folks for help – not to make a habit of it, of course, but perhaps to assist you over a tight spot or help you make a necessary purchase. Even if you don’t feel comfortable asking Mom and Dad directly for a loan, it might be feasible for them to help you get a loan from another source.

Reaching a compromise

Let’s say you have an emergency expense such as a car repair or household expense, and you don’t have the money to cover it. You consider taking out a personal loan but your credit rating prevents you from qualifying for a loan on your own. You don’t want to take out a short-term payday loan, either because you need more money than most payday lenders offer or because you don’t think you’ll be able to pay it back within the allotted time period. And you hesitate to ask your parents to be co-signors on a more conventional loan.

There’s another option - consider seeking out a guarantor loan designed for people with bad credit, and ask your parents to be the guarantors. As long as they have good credit they will probably meet the lenders’ requirements for guarantors.

Make no mistake: if you default on the loan, your parents could still be held responsible, but there’s arguably an extra layer of safety for your folks, for generally the lender will pursue the guarantor only after all other options for collecting payment have been exhausted. If your parents were to be co-signors or co-applicants, on the other hand, they would be held equally responsible for the loan from the very beginning.

The other disadvantage to guarantor loans for people with poor credit is that they carry higher interest rates than do more conventional loans. Although payday loans also have extravagantly high interest rates and fees, the very fact that they are shorter term gives the borrower a little protection against accumulating excessive debt.

Notwithstanding these caveats, a guarantor loan might be a good choice for you and your folks if you both study the terms carefully and are aware of your obligations from the very beginning. Your parents need to be certain that they can handle the debt if you default. And you need to make a firm commitment to live up to the terms of the loan so they won’t have to worry about handling the debt. All parties should go into such a transaction with eyes wide open.

Always look at things from your parents’ point of view as well as your own

Perhaps your problem is that you’re struggling with existing debt and really don’t want to take on any more debt from a conventional lender. Take student loan debt (please). For many young people, student loan payments are the albatross that they’ll be carrying around their necks for years if not decades. Should you ask your parents for help?

It’s something to consider, but only after carefully assessing your folks’ situation. Look at things from their perspective. If your parents have significant debt of their own, if their income is lower than yours, or if they’re behind in saving for their retirement, asking them for money might not be a good idea. Granted, it isn’t always easy to know their financial situation, particularly if they have a tendency to shield you from that information. But if you do have a reasonable expectation that your folks are solvent, and you have a good relationship with them overall, it probably doesn’t hurt to ask. As with a formal loan such as a guarantor loan, however, it is essential that you come up with a plan together that works for all of you.

Most parents will do anything they can to help their kids, no matter how old those kids are. Don’t be afraid to reach out to them for help if you truly need it, but don’t take advantage of their love and good will. You may need financial assistance, which is nothing to be ashamed of, but you’re still an adult. Act like one.
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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