When is it time to 'cut off' your financially dependent parents?
If you're a parent, you may be used to helping
out your kids financially. But what
if the tables turn and your mom or dad starts coming to you for money? How much should you help out?
This can be tricky territory, acknowledges Topher Shipp, a
credit counselor for Rural Dynamics
Inc., in Butte, Mont. Shipp says older parents may face medical crises,
job losses or even hits to their retirement accounts that make it tough for
them to cover their expenses. "When they get stuck, the first person they turn
to may be their working adult kids," says
Shipp. "My own parents have certainly borrowed money from me on occasion, but
not because they wanted to. They just didn't have any other options at the
There are also cultural issues to consider. "Some cultures
-- including Latino and Asian ethnic groups -- may have strong expectations
about taking care of aging parents. It's simply expected that you will help out
older family members," says Brad Klontz, a financial psychologist, partner in an asset
management firm, and co-author of "Mind Over Money: Overcoming the Money
Disorders that Threaten our Financial Health." "Even within that
situation, however, it's important to work with your parents to take care of
themselves and not threaten your financial well-being."
At the other end of the spectrum may be elders who make poor
financial choices: They spend money on things they can't afford or fail to plan
for the future, and end up in significant credit card debt. According to data
assembled by the multi-institutional
Consumer Bankruptcy Project, bankruptcies
among Americans age 55 or older are increasing faster than among younger
filers. Among those filing bankruptcy, the percentage of those in the 55-plus age group nearly tripled between 1991 and 2007. The most common reason cited for filing: Credit card interest and
Assess the need
Part of your decision about whether to give your parents
money may depend on why they need it: Is this a temporary situation -- such as
a one-time loan to pay an expensive medical bill -- or an ongoing pattern of dependency?
An isolated emergency might be a good reason to offer a loan or financial gift.
However, if your parents repeatedly ask you for financial help because they
make poor choices -- they gamble, miss mortgage or rent payments, overdraw their
checking account, or run up credit cards -- it may be time to cut them off, even
though you may feel a bit guilty doing so, says Klontz. "Giving
them more money to try to cure a money problem is akin to giving alcohol to
alcoholic," he says. "It just furthers the problem and prolongs the suffering."
Also, if you're feeling uncomfortable or resentful about how
much money you're giving your parents or are going into debt yourself to help
them, that's a
signal that something needs to change, says Tricia Schobert, director of Consumer Credit Counseling Service of
the Tennessee River Valley in Chattanooga. "You don't want to end up not
having enough retirement savings yourself -- because you've been helping your
parents -- and then later end up relying on your own kids in the same
way," says Schobert.
So if it's appropriate to wean your parents off your
pocketbook, here are some strategies to consider:
"allowance." If you want to help -- and can afford to do so -- tell your
parents you can give them X amount per month, but no more, suggests Klontz. "That
way, you can feel OK about helping them, but have the power to say no to
expenses you can't afford," he says.
A similar alternative: Open a secured credit card with a very strict limit
(such as $500) that you authorize your parents to use. "They don't need to ask
you every time they need money, so they save a little dignity," suggests Shipp.
However, insist that your parents make the card payments themselves, and
closely monitor the account. If they stop paying, close the account.
- Create a
change timeline. Give your parent several months' notice that you'll no
longer be able to give or lend money. A clear deadline helps your parent adjust
to the financial change, and gives them time to find cheaper housing, start
saving or otherwise get financially organized. "It is much kinder than pulling
your support cold-turkey," says Schobert.
- Be ready
for an "extinction burst." This is the technical term for what is really an
adult temper tantrum, says Klontz. When you withdraw financial help your
parents have come to rely on in an unhealthy way, they may ramp up their bad
behavior and guilt trips for a while, says Klontz. That's a natural reaction.
However, if this gets tough on you, consider getting some emotional or
financial counseling of your own.
other help. In lieu of money, help your parents access social services. For
instance, Schobert says some communities offer emergency housing assistance or
help low-income residents pay for their utilities. Your parent may also need
help filling out paperwork to qualify for Medicaid
or the Supplemental
Nutrition Assistance Program (also known as food stamps). If your parent is
heading toward a home foreclosure, a credit counselor may be able to negotiate
a loan modification or repayment plan. Counselors can also help your parents
decide whether they need to consider filing bankruptcy.
- Close questionable
accounts -- as soon as you can. If you co-signed on a loan or credit card
with a money-burning parent, you are in a tough spot. If your parent
defaults, dies or files Chapter 7 bankruptcy, you're on the hook for the entire
balance, warns Shipp. You may have to remove your parent's name from the
account, take over payments and close it as soon as you can.
Sadly, your own credit may be temporarily damaged by your parent's financial
mismanagement. "That's why you should always think twice before co-signing on
anything with a parent -- or anyone -- who might not be financially
responsible," says Shipp.
Although these tough-love tactics might feel a bit harsh,
in the long run they may do a lot of good. "A part of your parent may feel
terrible about asking for money, that this
isn't the way things should happen, even if he or she acts otherwise," says
Klontz. Cutting off your parent financially may actually help him or her regain
some much-needed integrity and self-esteem, he says.
See related: Lending to friends and family: Your 4-step guide, How to control elderly dad's financial blunders, Video: How to talk to your aging parents about money
Published: February 4, 2014