Would you go to the bank of gran and grandpa?

Lending to grandchildren is a good idea. It does good for both parties and is better than leaving cash in a bank. I bet a lot of the loans are never really called in or paid-off, or the “interest” is rolled up idefinitely, so they end up as gifts, which can malso make sense if IHT is an issue. This is the first period in my recollection where grandparents have some capital that they can dispose for a good purpose, and to some extent I feel they ought to extend the hand of fortune to the rising generation.

I’m not sure I’d feel comfortable ‘going to’ the bank of gran and grandpa – I don’t really like asking any family members for money. But I’ve been lucky enough to be offered money by my grandparents before, either to help me when I was a student or when they knew I had something quite expensive to pay for.

I think that as long as people can afford it it makes sense for families to support each other, and a loan from a family member could really help in a situation where someone would otherwise be denied credit or have to pay really high interest. I’d happily lend money to family members if they were in a tight situation like this.

But I think it’s important to distinguish between generous help and expected handouts. It might just be me but I’ve known quite a few people who rely on help from mum, dad, and grandparents and as a consequence they don’t know how to rely on themselves as they always expect a bailout. Help from family members is a lovely safety net to have, as long as it’s not an instant go-to.

Everytime I take my daughter to met her grandparents she always seems to leave with a little envelope. I know she doesn’t ask for it, if she needed money she’d ask her unemployed dad (although he’s usually added funds to her bank account before she asks), rather than her working mum. Oh and money she gets from me she doesn’t have to pay back, but her mum keeps asking for it everytime they meet.

Personally, I try to avoid borrowing money from family or friends whenever I can. But if I’m in a situation where it’s really necessary – I try to deal with it more as a financial transaction than as a ‘favour’. What I’ve done in the past is find out the cheapest rate I could borrow the money I needed from a bank, then find out what my parents were earning on their money in their savings.

I’d then offer them a rate between the two – so I can borrow money for less than the market cost, and my parents would make slightly more than they would if they kept the money in savings. I agreed a repayment scheme (monthly payments) and it seems that everybody wins!