As a finance writer, I can tell you how to ask your parents for money in an appropriate fashion, because whether you think it's acceptable or not, the reality is that 60% of Millennials accept financial help from their parents.
And these aren't college age kids, might be accepting financial help from parents to get through school. The metrics 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 whether or not adult children should accept money from parents.
I won’t weigh in because I'm an adult who once accepted financial help from her parents. 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 both my mind and my savings account.
For those looking for advice on how to navigate the ask and what comes after, below are my best tips.
How to Ask Your Parents for Money
Exhaust All Other Options
It depends on your individual family dynamic and the interest rate you’d get on a personal loan. Personally, I think mixing family, friendship and money gets very messy, which is why I’d try to investigate other options before taking money from parents.
Keep in mind they have may have their own financial goals and obligations. And as an adult, it’s important to stand on your own two feet.
Parental loans should only be used in the event of a dire emergency when other options simply aren’t available.
Thoughtfully Consider The Ask
If you’ve exhausted all options and can't make anything else work, it’s time to consider how you’ll ask your parents.
I hate cliches, but I feel two are really appropriate in a borrowing money situation: “honesty is the best policy” and “it pays to be prepared.”
When asking parents (or anyone, really) for money it pays to be up front and speak plainly about your needs.
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. 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.
Taking Money from Your Parents Means They May Pry
This depends on how close you are with your parents and how intimately they know the details of your own 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.
At the time, it was a particularly wedding travel heavy year, and although my parents never said or did anything that made me feel guilty, 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. You won't like it, but it's perfectly acceptable since you took their money.
Nothing is ever free. Honestly, even though you're paying less in interest, you may be paying for it more in lack of privacy.
If you take money from your parents, just prepare you for the consequences of taking money from family as opposed to say, a bank, or private online lender. It could work out swimmingly, and you can get a better interest rate (hopefully), but there are always going to be emotions involved.
Taking Money From Parents as A Gift
Taking money from your parents doesn’t only apply when it’s a loan for a special project or living expenses. More and more parents are gifting their children cash for buying a home, student loans, and wedding expenses. cash to minimize tax liability, and of course, shelling out for the booming wedding industry. For those lucky enough to have large cash gifts offered from their parents, below are some resources on what you need to know.
- Everything to Know About the Gift Tax
- Can an Adult Child Gift Parents Money and Claim It As a Tax Deduction?
- The Right Way to Gift Adult Children Money
- The Rules for Documenting Mortgage Down Payment Gifts
P.S. If you're a parent thinking about loaning money to adult children, I like this article from Market Watch.
Put Together a REAL Plan for Paying It Back
Even though it is Mom and Pop, even if they can totally afford to give you thousands of dollars, you should aim to pay them back.
The exception is, of course, if they give you money and tell you it's a gift. If the word “gift” doesn't come out of anyone's mouth, either ask for clarification or assume it's a loan.
Here’s what else you should hammer out before money changes hands:
- If it's a loan, discuss with them a repayment timeline and find out what they're comfortable with.
- Discuss if any interest is involved (some parents do charge a very low amount of interest on loans to children) and if so, how much.
- Clarify 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. As much as I hope this doesn't happen to you, getting it writing is handy if the money ends up causing discord down the road.