An increasing number of young adults are struggling to make ends meet, as they try to juggle commitments at university, with holding down part-time jobs, battle to pay off student loans and other forms of credit, and face problems getting on to the property ladder. However, helping your child with debt is not always an easy task, and may not even be the right move.
Here we look at whether you should help your child and what you can do to make a long-term difference.
Should you help your child with their debt problems?
Helping a child with debt problems presents something of a moral dilemma. You always want to do your best for your children, but are you teaching them a better lesson in the longer term, by letting them deal with their own issues?
On the plus side, you’ll be giving your children a fresh start, protecting and building their credit score and even, potentially, protecting your relationship. However, on the negative side you could risk your own finances, face problems with your spouse, and there’s a risk that your children are not learning to take responsibility for their own actions and decisions. Generally speaking, a parent’s will to help will supersede these other issues; but think carefully about the circumstances before you offer assistance.
If you decide to help, what can you do?
Generally, the first step towards helping your children with debt, shouldn’t be to simply hand over the money they need. Instead, you should take a longer term approach and attempt to work through their problems step by step.
Step one: Budget assistance
If your child comes to you and expresses the need for financial assistance, suggest going through a budget together. Help them to draw up a list that shows their sources of income, alongside their outgoings. Look for ways in which they can cut back on their spending and how they can develop a plan and stick to it.
Step two: Talk to them about their spending
Making your child understand the seriousness of their situation may not win you any popularity contests; but it’s a vital part of the healing process. Offer them advice about how they can change their spending habits – if they like to spend freely then suggest ways in which they can spend within their means. Or if they like to take risks with their investments, encourage them to be more responsible.
Step three: Suggest third party assistance
Many children do not like to be told what to do with their money by their parents. If you feel your child may not respond well to your advice, suggest they seek third party assistance. Point them in the direction of national debt charities such as the Citizens Advice Bureau and the Consumer Credit Counselling Service; who’ll be able to offer independent, impartial advice for free, to help them organise their money.
Step four: Can you help in other ways?
Consider if there are ways to help without simply handing over the cash. It might be that you offer to babysit more if they have childcare issues; or even that you offer them temporary accommodation if they’re struggling to meet their rental payments.
Step five: Offering a loan
If you’re willing to help your child financially with their debt problems, then be sure you examine your own financial situation thoroughly first. Are you sure you can afford a loan, that you won’t be placing an unnecessary burden on your own monetary picture?
If you’re sure you can afford it, then approach the loan like a real business deal. Document all details and draw up a written contract – it might not feel natural to do this with your child, but chances are, this will give them the best opportunity to treat the deal seriously, and respect its terms. Create a repayment schedule and ensure there are firm consequences for failing to make repayments – including the fact that there’ll be no further assistance. In some cases you may wish to tie in other agreements – such as showing a clear change in their behaviour; or that they attend some debt help classes.
Ultimately, only you can decide how much help you wish to give to your child, and how far you’re willing to go. There may be extenuating circumstances, such as a divorce, illness or job loss, that you think is worthy of reconsideration. However, do take care if there’s a pattern of irresponsible behaviour – if there’s no regret then you may be better letting your child find their own solution.