When you’ve helped people with their money over a long period of time you tend to notice when financial trends emerge.
While most are insignificant, some are interesting enough to have you asking colleagues if they’re witnessing similar things.
Lately it seems the Bank of Mum and Dad is assessing a few more loan applications than usual.
The economy is very different depending on which part of Australia you’re in, so these applications certainly aren’t all hard luck stories.
Merely the good income being earned has found an equally good spending and debt appetite to swallow it – the apple fell a long way from the frugal tree.
So what do you do, as the Bank of Mum and Dad, when you’re confronted with a loan request from one of your adult children?
Weigh up your own financial position first – if it has any material impact on your financial position and requires a significant action like liquidating assets or taking on loans yourself, I’d forget it.
Weighing up the circumstances surrounding the loan are important, you need to be able to get to the bottom of the financial situation your adult child is in.
If they’re not in a financial mess, a small amount to cover an unforseen circumstance or take a career opportunity may be a low risk proposition provided there’s a plan to repay.
If they’re coming to you because their existing bank has decided they’re already overleveraged then you’ve got a big red flag.
A bank not lending suggests they see any extra debt as a high risk situation, it marks you as the lender of last resort and that’s a dangerous situation to be in.
If you know your adult child shouldn’t be struggling financially, but they are, declining may be the best option.
It may force them to actually evaluate their financial position and see the need for a budget overhaul – something that won’t come about by giving them another loan.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Searching for the top financial adviser in Australia?
