Should You Take Out A Loan From Mom and Dad?

by Justin Weinger on March 9, 2007

This post is about something near and dear to my heart – hitting up your parents for some of their hard earned cash when you need a little help making a big purchase, or to get through the month. 

I know, I know, you promise that you’ll pay it back.

Anyway, what got me thinking about this was an article by Laura Rowley that I read today on Yahoo! Finance.  Her main topic throughout the article was whether or not it’s a good idea to ask your parents for money when you’re attempting to purchase your first home.  Rowley hits on a lot of interesting points and essentially says parents should be very cautious when loaning out money to their children.

I actually agree that parents shouldn’t whimsically hand out money to their grown children.  This may seem like a surprising stance for a 25 year old, quasi-recent college grad to take, but hear me out.

I don’t think parents should haphazardly hand out large sums of cash, but I do think that parents should be there financially for their children and find creative ways to help out.  For example, after I graduated college, I wasn’t really excited about forking over half of my minute salary to live in a one bedroom dump.  So, what did I do?  I moved all the crap out of my college apartment and reclaimed my childhood bedroom.

Because my parents realized they were going to pay the mortgage regardless of whether or not I moved back in (meaning I wasn’t going to actually be a financial burden on them) they essentially told me that as long as I was financially responsible and save my money, I could live with them rent free for as long as I wanted to.

Thankfully, we both held true to our word; I took 10% off the top of my salary and put it in a 401k, I contributed the maximum to my Roth IRA and I saved every penny after that, and in turn, I didn’t pay a dime in rent.  So, I lived at home for two and a half years and was able to save up enough money for a down payment on a house.

While my parents didn’t give me the huge sum of money for the down payment, they gave me the means to be able to save up that money on my own.  And as corny as it sounds, I think it does add a sense of “I’m doing this on my own,” even though you got a boat load of help along the way.

All of that being said, even though I was able to save money, that probably wasn’t even the most enjoyable part of the entire thing.  I know a lot of people who want to get the hell out of the house as soon as they’re able, but I actually did enjoy getting to spend an extra couple of years living with my parents, so that was kind of a perk in and of itself.

So, to wrap this rambling up, I don’t think parents should give their children large sums of money.  Instead, I think the parents and their children should work together to come up with some sort of creative way that will allow the child to save the money on their own.

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