Baby Boomers and those in the 50-plus crowd are increasingly facing financial hardships. Many are in debt, dealing with medical bills, facing higher levels of unemployment — and even filing for bankruptcy.
To keep their heads above water, many Boomers are turning to their adult children to borrow money. If you have to get a loan from your child, here are some do’s and don’ts:
1. Do select whom to ask carefully
Parents in need sometimes think: “I have 3 kids, I’ll ask all 3 to split the cost.” But that doesn’t take each child’s financial and personal circumstances into account.
Ask a family member you’re close to and who trusts you.
If you’ve borrowed money in the past and not repaid, don’t ask again – even if it is your only child.
2. Do Be honest and realistic about your predicament
Explain to your son/daughter if you’re facing a one-time problem or whether you have an ongoing financial crisis.
If you can’t pay your rent because you overspent that’s one issue, but if you consistently can’t afford your monthly medication that’s another matter.
Don’t ask for a small amount if you know the next month or two you’ll have to ask to borrow the same amount again.
3. Do put everything in writing
Treat the loan as it is – a loan. That means it should it should be documented with a loan amount and repayment date and, possibly, a modest interest rate. Make it professional.
Consider using a service like Prosper.com. Prosper is a peer-to-peer lending marketplace. It acts as a third-party site to set up the paperwork for a loan. It also helps eliminate awkward conversations because you repay the loan via Prosper and your child can log into their system and see that normal payments are being made.
4. Do Repay wisely; Don’t over-promise
Stick to your agreed upon repayment schedule (Almost nothing damages relationships more than having a falling out over money).
For large loans, repay in installments (Don’t borrow $5,000 to have a roof replaced and then think you’ll repay it all in 30 days. Stuff happens and even if you’re planning to receive a big chunk of cash – like insurance policy money or a legal settlement – it could get delayed).
For smaller amounts, repay in a lump sum (This way, the issue is most cleanly dealt with and easily put behind you and the family member that loaned you funds).
5. Don’t use guilt or emotional blackmail
Many adult children already feel somewhat responsible for their aging parents. Don’t complicate their feelings or compound their feelings of guilt by saying things like “I’ll just go hungry” or “You’re treating me worse than the credit card companies.”
Also avoid any statements that might make your children feel like they HAVE to loan you money – or that they’re ungrateful kids if they don’t or can’t make the loan.
Q: What is a baby boomer? A: Anyone born between 1946 and 1964!