Wednesday, March 9, 2016

Formalize Your Loans To The Kids

Kid Loan Application

Loaning your kids money without insisting they pay it back sends a bad signal.

Consider the precedent and expectation you’re setting there. Not good.

The solution?

Don’t make loans to your kids. That’s the simple answer according to some.

But maybe there’s a better answer: treat loans to your kids like real loans, not gifts.

Formally track repayment. Charge an interest rate. Falling behind on payments? Garnish your child’s wages — i.e., allowance, chore, or odd job payments.

Too much hassle? Use a spreadsheet or an app to simplify the process.

The bottom line: Kids need to understand how loans work in the real world. They need to have a visceral understanding of just how painful debt can be. If they do, they’ll be more careful with that first loan as a young adult, be it a student loan, a car loan, or carrying a credit card balance.

So, don’t make fake loans to your kids, or they’ll end up in real financial trouble later.

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