As a financial journalist, I can tell you how to ask your parents for money in an appropriate fashion. Whether you think it's acceptable or not, 60% of Millennials accept financial help from their parents. And these aren't college age kids, the metrics used in the report referenced above are from a survey of post-college twenty-somethings. Blame it on the recession, failure to launch, yada yada yada. I'm not here to debate the finer economic points of adult children accepting money from parents.
Primarily because as a chronicler of awkward money conversations, it's my job to comment on etiquette and not circumstances.
I'm also not going to weigh in on if I think it's appropriate or not, because I'm an adult child who has accepted financial help from her parents.
Borrowing money from “The Bank of Mom and Dad” isn't something I make a habit of, but during the runaway renovation of 2013 I did take on an interest free loan from my parents, who graciously offered their help during a time when I was losing my mind and my savings account.
I borrowed $3500 to get my contractor out of my life and I paid them back within the year, sending them quarterly invoices and everything.
It also doesn't have to be a loan for a special project or living expenses. More and more parents are gifting their children large home down payments, cash to minimize tax liability, and of course, shelling out for the booming wedding industry.
But no matter what your circumstances, here are some tips for helping you navigate taking on loans from parents. (Which I recommend moreso than say, taking money from friends. You can read about that here.)
How to Ask Your Parents for Money: 4 Tips
Thoughtfully Consider The Ask
I hate cliches, but in this instance I feel two are really appropriate: “honesty is the best policy” and “it pays to be prepared.” When asking someone (anyone, really) for money it pays to be up front and speak plainly about your needs.
Timing is everything (another cliche!). When inquiring into people's personal finances or broaching the topic of money it pays to pick your moment well, but don't catch them off guard. Warm them up by mentioning casually that you'd like to set some time to talk about finances, your estate, xyz. Then say, “I feel (x time, day or event) would be appropriate. What works for you?”
Just because they're your parents doesn't mean you shouldn't treat it like a business meeting. Letting them know in advance it's going to be a serious conversation rather than a catch-up dinner allows them to come prepared and with their defenses down. No one likes to be taken by surprise.
Put Together a REAL Plan for Paying It Back
Even if they're Mom and Pop, even if they can totally afford giving you thousands of dollars, you should aim to pay them back. The except is, of course, if they give you money and tell you it's a gift. If the word “gift” doesn't come out of anyones mouth, either clarify or assume it's a loan.
If it's a loan you should discuss with them a repayment timeline, finding out what they're comfortable with, if any interest is involved (some parents do charge a very low amount of interest on principal) and then when you'll be making payments. Every month? Every quarter? One big lump sump annually?
Once you've figured out how the loan is going to be structured, you need to put it in writing. This is the most crucial step! I know this can be a pain (who likes unnecessary paperwork, especially for someone as close as your Mom and Dad), but it helps keep things more business-like, which can come handy if the money ends up causing discord down the road.
Besides, borrowing money is not the time to be ambiguous no matter who you take the money from. You know this. Get your head out of your butthole.
Prepare for it To Be Awkward
This depends on how close you are with your parents and how intimately they know the details of your finances. I know for me, when I took money from my parents and was on a quarterly repayment plan, I felt guilty any time I mentioned I was going on a trip. This was a particularly wedding travel heavy year, and they never said or did anything that forced me to feel this way, but I did feel strange.
I got very lucky in this respect that my parents chose not to pry, but honestly, if you're asking Mom and Dad for money, it opens the door for them to comment on how you're living your financial life. Even though you're paying less in interest, you may be paying for it more in lack of privacy. Not to discourage you, but this is another thing to think about before you take on a loan from your parents.
So my final tip is to tell you to prepare you for this consequence of taking money from family as opposed to say, a bank, or private online lender. You can get a better interest rate (hopefully), but there are always going to be emotions involved.
P.S. If you're a parent thinking about loaning money to adult children, I like this article from Market Watch.
What do you think? Have you ever taken a loan from “The Bank of Mom and Dad?” Are you a parent who has given one of these loans? Would you ever give a loan to a kid?