What would you do if, age 22 with no commitments, you find yourself with a windfall of £500k plus? Would you buy a flat, a few nice toys, cars, boats etc, or would you, a failed university dropout, buy into a business you know nothing about without taking advice?
If the 22 year old opts for the latter option, what happens when this doesn’t go quite to plan and in, a very short time indeed (less than three months), everything starts to fail?
I am happy to say this is no relative of mine, but it is someone’s son and the windfall was as a result of a capital release scheme in the family home. So, although not hard won by the young man in question, for the parents it was a life’s savings.
Less than 12 months later, not only is the £500k long gone but the young man is now facing the chilling prospect of having to declare himself bankrupt as he foolishly signed a ten-year lease on a property that is now of no use and has found himself unable to sublet. This, coupled with serious mistakes on VAT filing and additional personal guarantees given to the bank, means he has few choices.
His parents’ reaction is interesting. Although they had advised strongly against the investment, they continue to bank roll their son. He still runs his very nice (leased) car through his parents bank account and has just returned from a “much needed” two-week break, paid again by said parents, in a five-star hotel in Cyprus.
As a mother of four, maternal loyalty is something I am all too familiar with – but I do wonder if this level of support is just one step too far.
Of course, it is not an easy call and no-one would wish failure on their child but if you continue to give without any caveats, they will learn nothing from their misadventures. In this case, he has borrowed yet another substantial sum from his parents who this time have re-mortgaged their home at a time when they should have been enjoying a less debt-burdened existence.
The money being raised is not to bail their son (who is now mid bankruptcy order), out per se, but rather to buy him an apartment so he can “start afresh”. Naturally this will be in their name until the bankruptcy is resolved but the intent is ultimately to transfer this to their child.
There is a well-known saying that “what gets given doesn’t get valued” so one must question why keep they keep giving and giving? It certainly doesn’t appear to be conducive to learning.
So what to advise if you want to help a child financially? Firstly if you give either write it off or caveat gifts with recommendations. Secondly, ensure the beneficiary learns from mistakes. Thirdly, make sure the beneficiary takes professional advice at the start, throughout and at the end of any business venture. Fourthly, if you do decide to bail out your child, do so only with provisos that satisfy you that the child has learnt. Finally, and most importantly, listen, don’t judge too soon and be an emotional support.
Harsh maybe … But ultimately this approach is much kinder in the longer run.
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