Should Parents Bail Their Kids Out of Debt?

This is a guest post from Daniela Baker.  Daniela is a personal finance blogger.  If you're looking to compare credit cards, visit her team's blog at CreditDonkey for reviews, deals and tips.


Just a few decades ago, it was very rare for parents to support their adult children, especially after they had attended college, gotten a real job, and started a family of their own. These days, though, more and more Baby Boomers are supporting their adult children in a myriad of ways. While sometimes parents in this generation simply do a load of laundry when their children come visit for the weekend, many are helping in bigger ways that are potentially harmful to their children, their families, and their own retirement funds.

According to a 2011 survey on Reuters, over half of Baby Boomer mothers are supporting their adult children financially in some way or another. While some of these parents simply slip their kids a twenty from time to time, others support them financially full-time, allow them to live back home indefinitely, or pay off their debts for them.

As a parent, it can be difficult to let go of your children and to let them grow up, but parents supporting adult children has never been as big of an issue as it is today for parents of adult children. Whether you're dealing with a college kid who has a little too much fun with the credit card or a child moving on to graduate school with a huge load of undergraduate debt weighing him down, choosing whether or not to bail your kid out of debt can be tough.

While there's no one right answer to the question of whether or not parents should bail their children out of debt, here are some questions you should ask to decide what would be best for your particular situation:

Where did the debt come from?

As a financially savvy adult, you know there's a world of difference between a student loan and a mortgage and between a car loan and a credit card debt. The type of debt that your child is in should help determine if you'll make the decision to pay it off.

If your child has credit card debt with high interest rates, you might be more likely to pay it off because the interest rates can be so crippling. On the other hand, if high credit card debt comes from a lifestyle of out of control spending rather than a one-off emergency or a few isolated bad decisions, your child won't learn much about real world finances if you pay the debt for them.

Is this already (or is it going to become) a recurring theme in your parent-child relationship?

If you're constantly paying off debts for your child, or if you suspect that once you start this cycle, you won't be able to get out of it, it may be time to pull back and let your adult child be an adult. Remember, as a parent, your job is to equip your child for a full life as an independent person. If you are constantly paying off your child's debts, you're literally cutting her feet out from under her. Sure, it might be tough for her to learn to cut back on her spending so she can buckle down and pay off credit card debts or student loans, but for most children, this will eventually lead to a greater control over personal finances and a greater sense of personal accomplishment and independence.


Will it strain relationships for the family?

Paying off a child's debt free and clear can leave you feeling resentful, and paying off a debt with expectations that the child will pay you back in a reasonable amount of time can leave you both feeling strained and constantly worrying about money when you're together. Either way, your relationship with your child can end up soured. After all the years you put in being the disciplinarian and parent, now is the time when you should be learning to become your child's friend – not when you should be ruining your transitioning relationship.

Besides straining parent-child relationships, though, paying off one of your child's debts can lead to resentment between siblings. The most common problem is that siblings who don't really need your help feel that they are being treated unfairly, which can make them resent the sibling who is getting help. This is particularly true if the sibling you're helping tends to be financially irresponsible in the first place.



What kind of lesson will your child learn?

Again, your job as the parent isn't to fix every problem your child will ever have. It is, rather, to ensure that your child has what it takes to fix his own problems as an adult. It's incredibly difficult for parents to step back and allow children to learn a lesson, whether you're letting your toddler fall down while learning to crawl or taking a hands-off approach when it comes to your adult child's debts.

If you think that getting into too much debt in the first place is enough to teach your child a lesson about using money wisely, then paying off the debt may not be a bad thing. Your child can get a fresh start having learned his lesson about money management. If, on the other hand, you're really going to teach your adult child that he can still come running back to mommy and daddy for help when he makes mistakes, it's probably best to let him pay his own debts.

Can you afford it?

Parents will by nature sacrifice almost anything – even their own lives – for their children, so most parents won't ask this question when deciding whether or not to pay off a debt for their child. If they decide they're really helping their child by paying off that debt, they'll do it even if they have to tap into a retirement fund or take out a second mortgage.

The problem, though, is that this isn't an essentially selfish question. Think about it: if you are constantly paying for things for your adult children, digging yourself into debt, and failing to save enough for retirement, who is going to end up taking care of you in your old age? Your children. By solving problems for your child now at the expense of your own financial well-being, you're putting your child's financial well-being in danger when it matters more.

It's not that hard for a twenty-something with no family to cut back on extra expenditures to pay off debts, but it's incredibly hard on a married-with-children forty-something to care for both her children and the financial needs of her aging parents who don't have anything saved for retirement. So by ensuring that you can take care of yourself financially, you're really securing your child's long-term financial future.

So many undergraduates and young adults these days have high credit card balances of $3,000 or more. That's a big debt for a student, when you tack on high interest rates and the student loans they're probably carrying, as well. As a parent, it's difficult not to just pay off that debt and give your child a fresh start. However, paying off these college student credit cards now could start a vicious cycle of your child overspending and you paying down her debts that lasts well into her adult years, crippling her and you financially for life.

Before you jump to pay off your child's debts, credit card or otherwise, think carefully about the long-term ramifications of your decision, and don't be afraid to make the tough choice if it's better for your child's long-term financial future.


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