Deciding whether to invest in a startup company is a difficult decision, particularly if your own child is involved in the company.
A common misconception: parents should always help their children.
Sure you should help your kids, but help doesn’t always mean agreeing to do whatever they want. Sometimes the best thing you can tell your child is, “No.” This rule even extends to issues such as whether you should invest in your adult child’s startup company.
Recently, I met with parents who brought their son to their financial review. The parents wanted to know if they should invest in their son’s startup company. The son explained his high-tech idea to me, and frankly, it sounded quite interesting. He concluded by stating: “I want my parents to invest with me.”
The problem with investing in your child’s startup
Good investment strategies are strategies that stand on their own two feet and are removed from emotional connections. By that definition alone, investing in your child’s company can be problematic. After all, what can be more emotional than investing in your own child’s company?!
What should I do if my child asks me to invest in his startup company?
If your child has a business idea that he wants you to participate in, tell him you will discuss the investment with your financial planner. Your financial planner has YOUR best interest in mind all the time. If he says, “This is not a good investment for you, given your financial situation,” there are no hurt feelings if you choose not to invest in the startup. Your lack of investment doesn’t reflect a lack of support for your child or interest in his business. It is simply a reflection of the best way of implementing your financial plan. Getting a third party involved can make the decision not to invest in your child’s business much easier as it has nothing to do with him or his business, but everything to do with you.
Discussing money issues with kids can be challenging. Click here to learn how I teach my children about money.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You A Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial Planner (CFP®).