Canadians are collectively in more debt than ever. Mortgages are by far our largest expenditures, but we also have a great deal of auto debt, student loans, and credit card balances.
Younger people are generally afflicted with more debt than older folks. It’s a natural by-product of starting out. An education in a marketable degree is an investment that will pay for itself many times over, even if one must pay some interest. Same with a car loan if a vehicle is needed to get to work.
Parents, who tend to have better finances than their adult children, will often step in and help, volunteering to help their offspring save serious interest costs by paying off a loan. Payments would then be due to the Bank of Mom and Dad.
Some people are quite comfortable with this arrangement. They look at debt from a purely mathematical perspective and see the interest saved.
But others feel far more conflicted. The last thing many millennials just starting out want is to admit they can’t handle things on their own.
They’re also worried parents will judge them for having fun while there’s still a loan balance outstanding.
And then there’s the potential to not pay. A certain percentage of loans to family members end up going bad. Both parties must consider this possibility and the implications it would have on the long-term relationship between family members.
Ultimately, borrowing money from family can be a smart move, but I wouldn’t recommend it for most people. There’s just too much potential for drama.
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