For parents, the upshot can be both painful and expensive, as Melissa and Chris Skelton of Las Vegas learned. The Skeltons have always paid their bills on time, so imagine their surprise recently when an application for a zero percent loan on a new Suzuki came back with a counteroffer—a whopping 12 percent interest rate. The reason? Their daughter, Tiffany, 25, had been late with payments four times on her car loan, which Dad had cosigned.
"I love my daughter—she's awesome, she really is," Melissa emphasizes. "But this has really hurt us."
Whether your child needs a roof over his head, lacks medical coverage, or gobbles up credit cards, experts say there are smart and not-so-smart ways to help him. Consider these ground rules for keeping your money and family from heading for trouble.
Shine a light on the problem. "Parents are most effective when proactive," Dungan says. When you're in the dark, you need to get a conversation started. "If a young adult is scrambling, say, 'Let's explore a move home to save money.' " Dungan calls undiscussed financial issues the 8,000-pound elephant in the living room. For young adults inexperienced with managing money, the instinct to hide or ignore problems can be strong.
Let the child lead. Once the facts of the situation are on the table, let your child make the financial proposal. You aren't granting an allowance, after all; you're making an investment in her maturity. If you have to begin with an emergency bailout, make it step one in a plan to halt future monthly shortfalls. Agree on deadlines for her achieving goals—three months, six months, a year—along with the financial obligations of each party.
Get the numbers. If you're going to play the role of banker, reserve the right to review details of your child's finances so you know what he can and cannot pay for. Keep records of your cash gifts or loans and any terms you set—and suggest that he keep his own records of spending and saving, which will help make fiscal responsibility a habit.
Draw the line. Sometimes the most helpful solution is to say no to a request for money. "Most young adults really do want to earn their own money," says Dungan. "For example, it's not appropriate for parents to take a home-equity loan to pay off kids' credit card debt." Russ Phillips, now 34, is proud his mother was strict with him through rough times in his early 20s. Now a father himself, he says he's glad she gave him only enough to get by. "Otherwise," he says, "it doesn't give you any reason to try."
Know when to call for help. What happens if all this communication and care comes to nothing? Sometimes, says Dungan, you need a debt counselor, a financial planner, or another neutral party to get some heavy emotional baggage checked at the door. If your child has an addiction or psychological problems, a difficult spouse, or a child of her own whose behavior complicates the picture, make clear that you see a problem that's more than you and she can handle.
Anne Cassidy is the author of Parents Who Think Too Much (Dell, 1998).