Kids with debt are in luck: 9 out of 10 parents would help bail them out
But experts say teaching better money habits may be the best help parents can offer
Award-winning writer covering consumer and small-business credit cards.
Young adults drowning in debt can probably turn to their parents for a financial lifeline, a new CreditCards.com poll shows.
The survey asked parents how they’d respond if their child asked for money to pay off a debt. Only 1 parent in 10 (10.5 percent) said they’d refuse to help financially, and over half (52 percent) said they’d give $1,000 or more. In fact, the average parent would offer $5,705 as a gift or $7,936 as a loan. Dads were even more generous.
Why are parents willing to fork over so much cash? They naturally want to help their children, says Martin Lynch, director of education for Cambridge Credit Counseling, a nonprofit credit counseling agency. But there may be other factors at play, too.
“Many parents have such an aversion to interest that they’re willing to compromise their own lifestyles to keep their child from paying this unnecessary money,” says Kelley Long, a certified financial planner at Financial Finesse. She worked with one family, for example, where the father insisted on bailing out the son for a fourth or fifth time because he couldn’t stand to see $600 a month in interest go to creditors.
Parents also understand that many young adults today are facing heavy student loan burdens, and that means tighter budgets and an easier fall into credit card and other debt, Lynch says.
Emotions like guilt, shame and pride also can come into play, says Maggie Baker, clinical psychologist, financial therapist and author of “Crazy About Money: How Our Emotions Confuse Our Money Choices and What to Do About It.”
So, should you bail out your kid? Sure, if you have the money and want to help. But make sure it won’t hurt your own retirement goals or force you to postpone home or car maintenance, costing you big down the road.
“If you’re going to help out, make sure it’s affordable,” Lynch says.
Lending your kid a hand
If parents had to cough up the cash, would they really give as much as they claim? “There might be a bit of wishful thinking on the part of the parents,” Lynch says, pointing to the fact that many Americans can’t come up with $500 in an emergency.
The poll was conducted from Oct. 26-28, 2018 on behalf of CreditCards.com through a national online service of Ipsos Public Affairs. The respondents who said they have children (61.5 percent) were asked what they would do in various situations if their child asked for help with debt. (See poll methodology)
The poll found that Dad is more likely to give and hand over more money than Mom. In fact, fathers were twice as likely as mothers to say they’d give their kid more than $20,000 to hoist them out of debt. If they don’t expect to be repaid, 18 percent of dads would give more than $20,000 compared with only 9 percent of moms. The average dad not expecting repayment would give $7,045 while the average mom would give $4,643, according to the poll.
Why the discrepancy between moms and dads? There could be a variety of reasons, experts say. First, men are still the main breadwinners in almost 70 percent of households. And men are more likely to say a man needs to provide for his family to be a good husband or partner.
There may be an element of “bravado” for a man in being able to help lift his kid out of debt, even if he ends up in debt himself, Baker says.
“For many men, money is power,” she says.
But some parents find a way to help without bailing their kids out of debt. One dad, Adam Ward, says his son A.J. recently racked up several thousand dollars in credit card and other debt near the end of four and a half years in the military.
Ward, a consultant from Columbus, Ohio, says he and his wife helped their son move back into the family home, got him to eliminate “silly” monthly expenses from his budget and talked him into swapping his credit card for a debit card. They also explained the method they used to pay off their own debt several years ago. Their son is on track to be debt free within a year.
“We felt that if we were to cover the whole thing, the lesson wouldn't be learned,” Ward says.
Parents say no to some types of debt
Some parents take a hard look at the type of debt before agreeing to help. Medical debt was most likely to garner sympathy from Mom and Dad, followed by mortgage or rent and utility debt, the survey found.
“In most cases where I see a parent helping a child with mortgage, rent or utility debt, it’s because the child has fallen on hard times – they lost a job or some other circumstance has affected the child’s ability to pay this bill,” Long says, adding that this help is usually temporary.
The survey asked parents if objections to the type of debt would affect their willingness to bail out their son or daughter. Here are the percentages of parents who said they would never help with a specific type of debt:
- Gambling debt (57.3 percent)
- Credit card debt (15.9 percent)
- Auto loan (8 percent)
- Student loan (6.1 percent)
- Mortgage or rent (4.1 percent)
- Utilities debt (3.9 percent)
- Medical bills (2.1 percent)
The survey found credit card debt carries less stigma than it did in the past. The number of parents who say they would never help with credit card debt is down 12 percentage points from 2009, when a similar CreditCards.com survey found more than one in four parents (28 percent) would refuse to help a child who owed money to a credit card company.
It’s possible that parents are feeling more generous about helping kids with credit card debt because they feel better about their own financial situations now, Long says, pointing to a recent report from the American Institute of CPAs that shows Americans are experiencing a record high level of personal financial satisfaction.
It’s great that there may be less shame around perceived “bad” financial situations, Long says, but she noted it’s still best to avoid credit card debt if possible.
“Hopefully these parents aren’t enabling ongoing habits that could keep kids from reaching financial wellness,” she says.
Acting against your own best interest?
The survey found parents with household incomes of under $30,000 were about as likely to help their child with debt as those in higher income brackets. In fact, income did not make a significant difference in willingness to bail out a child in debt until the top income bracket of $75,000 and up.
Surprisingly, about one in 10 of the parents earning less than $30,000 a year (10.9 percent) said they would give more than $20,000 to bail out a kid in debt. In contrast, only 7.9 percent of those earning $30,000 to $49,900, and 6.7 percent of those earning $50,000 to $74,900, said the same.
A parent who’s on a tight budget of their own definitely should reconsider any plan to pay a debt for an adult child, Lynch says: “There are probably a lot of parents who really should not be helping in any way.”
See related: Being too nice could cost you money over time
How to give your kid smart debt help
Before opening your wallet to help your kid with debt, take a hard look at your own finances to see what you can afford. If you’re not sure, visit a nonprofit credit counseling agency or a financial planner.
Here are five tips from financial experts on how to be smart about helping a child in debt:
- Review options with your child. Look at the situation and talk to your son or daughter about the possibility of negotiating medical debt with the doctor or hospital, switching to income-based repayment for a student loan or putting credit card debt into a debt management plan through a nonprofit credit counseling agency.
- Decide on a gift or a loan. If you plan to offer monetary help, decide whether you want to be repaid or not. Consider giving the money as a gift if you can, says Forrest Talley, a therapist who has dealt with family money issues. “This way, you avoid the debtor/creditor dynamic,” he says. But Baker points out that making a loan with an official promissory note and interest can help teach your child financial responsibility.
- Consider your future feelings. Is your child in debt due to financial irresponsibility? If so, consider the fact that your kid might make financial moves you disagree with in the future. “Think about how you’ll feel if you give your child this money and then see him or her roll up in a new car or go out to a nice dinner with friends or do something else you think is financially extravagant,” Long says.
- Consider an angel fund. Do you want to help with ongoing debt repayment or suspect your child might request help again in the future? Consider a dedicated savings account, where you give only the money in that account and nothing more, Long recommends. “You can be generous but still have your limits,” she says.
- Offer to fund help. Instead of helping with debt, consider paying for a financial management class or a few sessions with a financial planner or financial therapist, Talley says. Your adult child might really benefit from having a neutral party walk them through the process of getting out of debt, and teach them how to avoid it in the future, he says.
And remember, sometimes the best thing you can do is just say no, even if it’s hard.
“It’s not a good thing for your kid to know they can always go to Mom and Dad Bank,” Baker says.
The survey was conducted from Oct. 26-28, 2018 by Ipsos Public Affairs. Online interviews were conducted with 1,000 adults aged 18 or older. The completed interviews were weighted to ensure accurate and reliable representation of the total adult population. The margin of error is plus or minus 3 percentage points.
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