Editors' Pick: Originally published Dec. 28.
Parents dealing with a son or daughter experiencing significant debt issues have a quandary - help their adult children pay the debt, or take a pass on any financial aid and just leave it to their offspring to work it out on their own.
There are no easy answers with kids and debt, but there is plenty of evidence that mom and dad put their own financial health at risk when they do pitch in and pay off a child's financial obligations.
"I've seen a relative bail out, and keep out of jail, an adult child," says Christopher Sharp, an author and a father of two children. "The aid they gave their adult child cost them nearly everything. They had to sell their house, go bankrupt and move as a result."
"They spared the son some shame and embarrassment, though his siblings did disown him for what he did to his parents," Sharp adds. "The worst part is that after they bailed him out, he got into debt again, and they helped him again." Given the kind of vicious cycle and enabling scenario these Bank of Mom and Dad bailouts can cause, Sharp says he is against paying off a child's debt.
"Once you grow up, if your parents have done their job, you'll be able to handle your own affairs responsibly," he says. "When you become an adult, you should be helping your parents out in return for all the years they invested in you."
Even so, there are plenty of parents who will jump into a child's debt situation headfirst, financial risk be damned.
In a new report out this week from BMO Harris Premier Services, analysts found that parents would make substantial sacrifices to help their struggling adult children. Some 47% would be willing to retire later than planned, 25% would take on debt and 20% would make withdrawals from their retirement savings to provide financial support for their children, if required, the report states.
"Parents want to see their children reach their potential and become successful adults, so it's not a surprise they are willing to make sacrifices that could affect their own financial situation to benefit their children's well-being," says Stephen Williams, co-head of U.S. financial planning strategy at BMO Private Bank. "If parents and children have frank conversations with each other about the amount of support they expect to provide or receive, they can avoid misunderstandings that could put their financial situations in jeopardy."
Even some young adult children don't want parents to jeopardize their financial health, nor do they want to miss out on opportunities to learn some self-reliance.
"Accumulating and paying off my own college debt taught me finances, spending priorities and laid the foundation for a strong work ethic," says Tanya Fischoff, a marketing analyst at Consolidated Shoe Company in Lynchburg, Va. "In school, I took classes more seriously as I had a vested interest in the value - skipping class essentially had a price tag. I took ownership over my education."
"I'm grateful my parents took this approach," she adds. "I believe much of my success in life is due to their tough love. This is certainly an approach I want to carry into my parenting in the future, in hopes that it will instill the same ideals in my children."
For parents, helping out on a child's debt issue can depend on the circumstance at hand, but there are key factors to consider. "If an adult child asks for help, parents must consider, 'Is this a recurring act in which you've not noticed any changes for the better, or is he or she working hard, making progress?" says Jean Walker, author, mentor and entrepreneur with The Regear Group, near Buffalo, N.Y.
Basically, don't be a pushover, Walker advises. "Make him or her work for it," she says. "They must make a good case as to why they need assistance. If they're working hard, growing a career or business, and you know that they're not depending on your help, solely - you can consider financial help as an investment. You know your child well enough (hopefully) to know whether or not he or she is worthy of your help."
Walker is even more direct on trusting your gut on the kid and debt issue. "Whatever you do, don't dismiss your instincts," Walker says.
Wise advice, indeed. Here's hoping mom and dad take it.