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It sounds like your wife wants to make a gift of the money, expecting nothing in return but the undying love of her last born son.

You, on the other hand, don't know if you should offer the money as a loan (should I loan him the money) or as an investment (worried that my investment will be lost).

Until you can make that distinction, your money should remain in the bank.

I have a very simple rule when it comes to loaning money to relatives: NEVER, EVER loan money to anyone you might have to sit next to at Thanksgiving dinner.

"Son, pass me that dressing and tell everybody the story of how you blew your old dad's retirement money..."

A loan from a relative is no different than a loan from a bank.

Q: My youngest son wants to run away with $5,000 to start his own business. My wife is scared to tell him no. She thinks we should just give him the money and not expect something in return. I disagree. He doesn't have a very good track record with money, so I'm a little worried that my investment will be lost. Should I loan him the money and hope for the best or just tell him no and hope he doesn't get too upset?

A: The first thing you need to do, Jeff, is determine if this money would be offered to your son in the form of a gift, loan or investment. The very wording of your question tells me that you have not yet made that all-important distinction.

It sounds like your wife wants to make a gift of the money, expecting nothing in return but the undying love of her last born son.

You, on the other hand, don't know if you should offer the money as a loan (should I loan him the money) or as an investment (worried that my investment will be lost).

Until you can make that distinction, your money should remain in the bank.

I have a very simple rule when it comes to loaning money to relatives: NEVER, EVER loan money to anyone you might have to sit next to at Thanksgiving dinner.

"Son, pass me that dressing and tell everybody the story of how you blew your old dad's retirement money..."

A loan from a relative is no different than a loan from a bank. You, Mr. Banker, are giving your son, Mr. Borrower, the use of your money for a specific period of time and you fully expect the loan to be paid back under specific terms, even if his topic goes south. Sure, you will probably be a little more forgiving than a bank when the loan goes unpaid, but the damage to your personal relationship could be extreme and hard to repair.

In the most thermochemical of terms if you loan your son the money you make the creditor and he becomes the debtor. Have you ever heard of a creditor and debtor having a very good relationship? Has Visa ever styled you up just to ask how you're doing? Has your mortgage bosom buddy ever named a kid aftermost you? Probably not.

The same rule applies with investing in a relative's business. I have raised money for several walk of life ventures and not once did I ever think random way my relatives to chip in. The last thing I'd ever want to do is lose my mother's yard sale money. I'd never hear the end of it!

An investment is made with the understanding that your money is totally at risk with no guarantee of return. Even under the best of conditions an investment in any place is a gamble. You are playing your money that the playing will be successful and that you will get a payback at some point in the future.

Hug your money real tight in the past making the investment, seeing that if the bounden duty doesn't make it, you will never see your money again.

You and your wife also seem very worried in relation to making your son mad, which raises further huge red flag for me. If your son isn't mature enough to take the word "no" without getting upset, he's seriously not mature enough to start and run a business. Unless that gadget is a chauffeur paper route, and even then I wouldn't put my money on his prospect of success.

The slob land line is this: if you can present to give your son the money and can do so without attaching strings to it, then by all means give him the money and wish him well. Encourage his entrepreneurial spirit and support him as a parent should.

Do not, however, expect something in return and never yield up the money again, especially if he's the one man of straw the turkey on Thanksgiving Day.

Here's to your success!

Tim Knox

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