We’ve all heard the drill. As the plane is taking off, the stewardess cheerfully stands at the head of the aisle and warns you that if air is suddenly sucked out of the cabin, a little oxygen mask will drop magically before your eyes at the same time one is falling before your young child’s sweet little face. But DON’T EVEN THINK about fitting the mask on your child before you put on your own! You are instructed to put on your own mask first, and then worry about little Johnny or Susie. Seems just plainly wrong, wrong to parents who would gladly crawl over burning coals to save their child from harm. Yet, we all understand the logic behind the idea. If you lose consciousness from oxygen deprivation before your child is safely “under the mask”, the chances are good that you both may be lost. If your mask is on first, you have time to arrange the child’s mask so that both of you (hopefully) end up in good shape.
There is a life lesson in this. As parents, we come pre-programmed to want to save our children from hardship, and to make their lives easier than ours were at their age. We might want things for them that we never achieved, like a college degree. We may want to see them in the house of their (and our) dreams. We are used to sacrificing for them when they were tots, so we’re already conditioned to help them while sacrificing our immediate wants for theirs. But is that really a wise thing to do?
We’re not alone in this bind. Surveys have shown that about 61% of American parents have assisted their adult children financially. Many of us do so at the risk of incurring long-term debts for ourselves. Especially in that case, where your income is relatively modest, or where you are living on a fixed income, your wisest move may be to keep the money for yourself. Be certain that you will not fall short financially because of the assistance you provided your kids. Keep in mind that the best way to help your children is for you never to need them to help you out!
I’m a bankruptcy attorney. In working with my clients, I have seen far too many of them having to file bankruptcy because they over-extended their own incomes by giving money to their adult children.
One of the worst things you can do is to jeopardize your own financial security by taking out parent loans to cover your kids’ college educations. It is far better for them to take out their own student loans. First of all, with the current costs of college, the loans themselves quickly become enormous, especially once interest starts kicking in. Your child has various options open to them if they cannot make payments on their student loans when they become due, such as income-driven repayment plans. Further, students who work in certain fields may be able to write off their student loans by working in low income neighborhoods for a couple years after graduation. These options are not available to parents who took out the loans in their own names.
Right now, on a national basis, the amount of outstanding student loan debt is enormous, in the trillions of dollars. It seems likely that Congress is going to have to provide some means of relief for student debtors. Whatever form this restructuring or forgiving of the student loan debt may take, you will not receive any relief as a parent if you took out loans for the benefit of your kids. Rather than take out parental loans, it would be far better to let your child get their own loans, and then, if you have the means, help them pay those loans off as they become due over the coming years.
Another scenario where you may find yourself in precarious circumstances is if you co-sign on a car loan. Again, it might be far wiser to let your child get his own loan, and then assist him if/when he encounters a financial emergency where he is in danger of missing a payment. In that way, he will need to qualify for the loan himself, which proves he should be able to make the car payments. Secondly, if he can’t make the payments and does lose the car, the lender won’t be able to come after you as the co-signer for any deficiency once it’s repossessed. Finally, if you are a co-signer on a car loan that goes belly-up, consider what that will do to your own credit rating.
Keep in mind as well that if you are under pressure having to make payments on behalf of your children, that can’t help but put a strain on your relationship. That may be especially true if there should come a time when your child has family responsibilities of his own, and you have no other option than coming to him requesting money for your own living expenses.
You need to ask yourself a question before you take on financial obligations for your children: Can you afford to lose the money? And consider your answer to that question not only regarding your current monthly expenses, but also accounting for the money you’re setting aside for your retirement. If you can’t answer truthfully that this is money you will not miss now or in the future, then you shouldn’t take out the loan.
Your financial stability is a lifesaver for your children as well as yourself. It may keep both of you afloat, so that you don’t become a burden to them in your later years.