The recession has hit consumers in every age group, from recent college graduates unable to find their first job to seniors watching their investments plummet. Seniors often feel obliged to provide financial assistance to their adult children, but experts suggest that not all help is equally valuable.
Should seniors provide financial aid to their adult offspring?
A recent University of Michigan survey found that 41% of parents provide financial support to their 23-to-28 year old offspring. No matter what their income level, these parents spend an average of 10% of their income on their adult children.
Parents, whether working full-time, getting near retirement or already retired, should first evaluate their own finances before providing financial bailouts to their adult children. Retirement accounts should be fully funded; household bills and loan payments should be adequately covered.
One way that seniors over age 62 can increase their income for their own use or to help their children and grandchildren is to apply for a reverse mortgage. Reverse mortgage guidelines allow homeowners to borrow against the equity in their home an amount based on their age and that equity. The reverse mortgage loan proceeds can be accessed as a line of credit, a lump sum or a monthly income depending on your needs.
Personal finance expert Beth Kobliner recently wrote an article with recommendations about which kinds of parental help really make sense and which types of help should be avoided. In every case, the parents should start by taking care of their own finances before helping their kids.
The two types of assistance she suggests are valuable include paying for health insurance and helping with the rent.
Kobliner says that helping pay student loans may not be the best use of your money, since student loan interest rates are low and options are available for stretching out the payments. Lending money directly to adult children should be done only with a legal agreement or promissory note to avoid disagreements over repayment and to meet IRS guidelines.
Two types of assistance that all parents should avoid: paying off credit card debt or co-signing on a credit card. In both cases, the parents would be better off teaching their offspring good financial practices.
Naturally, parents want to help their kids at every age. The methods simply change a little as the kids become adults.
Michele Lerner
Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,
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