To lend or not to lend: That’s the unique conundrum Indian parents face when their adult children ask for financial aid. By A Staff Writer
In a country like India where the concept of savings is deeply entrenched into the mindset of its people, it is only post-retirement that most seniors loosen their purse strings and splurge on items or experiences that they missed out on during their working years. After a lifetime of hard work, dedication, and savings, seniors retire to finally enjoy the fruits of their labor. But what happens when an adult child approaches his aged parent asking for money? How does a parent bail out a child in need without dipping into his savings?
When it comes to lending money to adult children, Indian parents often find themselves in a pickle. On one hand, they consider it their moral duty to provide for their offspring thus ensuring their safety and stability; and on the other, they need funds to secure themselves against unforeseen circumstances and potential medical expenses. The awkwardness around money has been known to drive a wedge in relationships often leading to polar views. Instances of friendships turning sour, families falling apart or professional colleagues becoming distant due to money are very common in recent times.
One thing is for certain- both relationships and money are sensitive matters and should be treated as such. Some children view their parents as BoMaD (Bank of Mum and Dad) and use it as an excuse to fuel their own laziness. They assume that their parents will continue to fund their lifestyle even after they are adults without having to earn their own living. Any parent would be wise to cut off funding for such a child and instead use it to enrich their own savings.
At the other end of the spectrum, in case of medical emergencies, financial crises’, huge loss or any other unforeseen circumstances, it is natural for children to approach their parents for financial assistance. So where does one draw the line? How should one go about lending money to their children? What are the important factors that one should keep in mind before doing so?
Co-Dependent VS Independent
An integral part of Indian culture has been the idea of joint families where it is common for Indian families to live together even after the son is married and has his own children. This is believed to create an atmosphere of happiness, togetherness and shared values. Many even argue that what’s life without your family? But pressures of the modern world lead a lot of parents and children to think that it’s better to live separately as each values their own privacy and living together might take a toll on the financial situation of the parents.
In this case, parents should first decide whether they value a joint family system or they prefer an independent relationship with their children. If they conclude that they want to continue to live with their adult children, they must ensure that each child contributes to the household expenses. This can be done through sound planning and a fair system of division of expenses.
To do this, all expenses must be listed on a spreadsheet. This would include rent and maintenance, energy and water bills, home maintenance and repair, insurance expenses, cleaning expenses, entertainment expenses, food and grocery expenses and so on. Each adult member of the family should contribute a fixed sum of money per month to the consolidated expense sheet thus creating equal responsibility amongst family members as opposed to relegating the entire financial burden on one person alone. Families can also create a separate joint account where each member would deposit their share every month. A mutually convenient date per month could be set on which every member must deposit their share of the expenses.
A cautionary tale
When it comes to lending or borrowing money, it can certainly be a slippery slope. This is where most controversies arise and if not handled delicately it could tear a family apart. If money is needed for an urgent matter — like emergency surgery, medical bills, a lost job, house mortgage – It’s a no-brainer: Experts say parents should help in such situations as long as they can afford it. Lending money in such a situation means you’re rescuing them temporarily; you’re not indulging them forever and putting them on your payroll.
However, it’s also important to ensure that you are not being taken advantage of by your own children. There have been instances of children collecting money from their parents under the guise of low income when they are actually quite well off by themselves.
Sanjay Arora, a wills and estates lawyer in Delhi, recounts a tale of an elderly couple who funded their only son’s college education in one of the esteemed Universities in India. Unfortunately, after his college he landed a low-paying job in another city far from home – that’s what he informed his parents. He continued to take financial support from his parents. Sometimes under the guise of the low-paying job to having a disabled child unable to pay the medical bills and other household expenses citing his earning did not suffice. For years parents kept sending him a large sum to support their only son’s family. Until one day they made a surprise visit to meet them. And were shocked to find out that their grandchild was not disabled and their son was on an extravagant holiday with his wife. It was after so many years they found out that their child had been using them as BoMaD. The parents finally realized that we’re being duped and cut the son off from their will immediately.
Ramesh was an army officer who had bought a two-bedroom flat in one of the numerous corporative societies provided by the defense forces for their officers. The flat was worth a decent sum of money. Ramesh and his wife wanted to sell it and use the money for their retirement. Meanwhile, his son wanted a loan to buy his own flat and the parents overcame the dilemma by giving the initial deposit for their son’s flat, reasoning that if they didn’t support their son what would be family all about. Eventually, they sold their own flat and bought two flats and lived next to each other. They would look after their grandchildren and the son and daughter-in-law would contribute to the household expenses. It also provided a safety net that if Ramesh or his wife were to pass away there would be someone to look after them in their old age.
Yet another couple, who had two daughters. One of the daughters was in a high paying job, lived away from the family. And the younger one was working with an NGO that helped destitute women. The parents insisted that she lived with them and not pay rent. They took care of providing for the daughter who lived separately and left the home to the younger daughter. For most Indian parents living with the children is an accepted norm unless of course career opportunities take the young away from the parents. Even the young parents in their sixties fear loneliness and grandchildren do provide grandparents with genuine love and affection.
Going the legal way
While this is an extreme case, parents must do their due diligence before handing over a large sum of money to their children. To secure themselves, parents can also give the money as a loan which would be repayable over a period of time. If the sum you are offering your child as a loan is large, make sure that you draft a legal agreement, clearly defining the terms, including the purpose of the loan, the exact amount being offered, interest rate, time frame for repayment, consequences in case of defaults, and any other conditions you want to be outlined. Going the legal way can help avoid future conflicts as it is a contract that is signed by both parties which leave no room for loopholes. A copy of the contract should be maintained by both parties. This may seem overly formal but when it comes to money matters, it’s best not to be swayed by emotions and approach it in a logical and sensible manner.
Cash Cow or Hoarder?
Letting your emotions govern your decision can sometimes be the catalyst in bad decision making. Experts reveal that when parents make bad decisions regarding money it can be categorized into two parts: cash cows or hoarders. Hoarders operate on the principle of tough love. They deprive their children of little joys through their lives in order to save money for their future. Forgoing vacations, not providing financial support during the marriage, refusing to loan them money to purchase their own home just to create a nest egg after retirement is a classic symptom of a hoarder’s mentality. A child of such parents can become hostile towards their parent and may no longer require the money when the parent leaves it to them in their will. They argue that when they needed it the most, the parent refused to part with their money leaving them to fend for themselves.
On the other hand, the cash cow parent falls prey to guilt and emotions and agrees to hand over large sums of money whenever a child demands it. Such parents are very malleable and children often resort to emotional blackmailing. They demand money for frivolous reasons like a luxury holiday or the latest gadget- things that do not require parents to dip into their savings. Experts suggest that parents should avoid giving away money unless they can afford it. It is estimated that about 90 percent of liquid assets are spent during the last 10 percent to 20 percent of a person’s life owing to medical expenses. Parents must avoid giving away more than 10 percent of their liquid assets.
Fair and Square
Indian families are typically large in size and it is common for parents to have 3 or 4 children. Each child tends to expect equal support from their parents and can create unruly conflicts if parents extend financial support to only one child. Parents should approach family wealth with a fair lens and keep all children in the loop when they offer their financial support to a particular child. If money is given to one child, the other children should be informed and promised similar monetary gifts either now or at the time of inheritance. If a parent gives a loan to one child, this loan amount can be deducted from the inheritance if it is not repaid before the parent dies. This can eliminate any possible resentment amongst siblings and prevent family disputes once the parent passes away.
Indian parenting is very different from western parenting where a child is pretty much on his own once he turns 18. Indian parents tend to remain attached to their children throughout their lives and are involved in most of their adult decisions as well. Ultimately a child will always inspire emotions within the minds of a parent and the final decision to lend money to a child lies with the parent. For parents, if you can afford – give money to your children with the understanding that the money is not going to come back. If you cannot afford – it’s better to say no and not feel bad because you have given everything you could. In today’s day and age parents must have money for themselves and to meet all their needs.
We have published two true-life stories of parents being in a situation where they had given all their money to their children: The taste of green peas and the story of Pitaji. Which brings us to the very question: What would you do if your children ask for money? Write to firstname.lastname@example.org