Helping Your Kids Without Emptying Your Pockets
It’s one thing to watch your own 401(k) evaporate, the value of your home diminish and your overall financial picture deteriorate. But what happens when your kids are swallowed up by debt — and they come knocking on your door for help?
Personal finance author Beth Kobliner spoke to students at Howard, American and Georgetown universities this week about strategies for tackling debt, and she met me for coffee to chat about ways parents can help and when they should just steer clear.
“It’s emotionally very difficult,” she said, and many parents are loathe to cut what she called the “psychological purse strings.”
The most important thing to remember is not to jeopardize your own finances in order to help your child, she said, particularly if you’re nearing retirement age and have a fixed number of years to build up/resuscitate your savings plan. Borrowing from your 401(k) (if there’s anything left in there) or tapping a home equity line of credit to help pay off your kid’s debt isn’t a great idea.
Also, Kobliner said not to be afraid to pass judgment on your child’s debt. You’ve weighed in on everything from the cleanliness of their rooms to their Friday night date, so why should debt be any different? You may decide to treat student loans or health-care costs as worthy causes while credit card debt from that new flat panel TV to watch the Final Four is not. The last thing you want to do is enable them to continue what could be a vicious cycle of spending.
And if your child wants to apply to the Bank of Parents for help, perhaps you should treat the money as a full-fledged loan, complete with interest. (If that makes you feel guilty, you could always return the interest to them after the final payment as a surprise.) As with any loan, Kobliner suggested that you and your child write down the terms of repayment and decide what the penalties should be for late or missed payments. Your kid may balk at the beginning, but Kobliner said many students she’s talked to found the arrangement to be liberating.
“There’s a sense of empowerment if they’re not getting a free ride,” she said.
We want to hear the ways you’ve dealt with your children's debt. How have you helped them save and what do you do when they get in over their heads?
Washington Post editors
April 1, 2009; 7:00 AM ET
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