If your grown children ask you for financial assistance, you must suspend your parental instinct to help without hesitation. Sometimes you'll find that your children have a bigger financial issue that a loan isn't going to fix. Here's how to tell good help from bad:
1. Beware the Mortgage Loan
If, after months of trying, your daughter and son-in-law still can't afford their mortgage, resist the urge to float them a payment. You're only delaying the moment when they accept that they probably need to walk away from their home. If your child's family is coping with a layoff, you—and they—need to understand that a new job may not pay as well as a prior position. That may mean it's time to find ways to reduce their living costs.
2. Think Carefully About Cosigning
If a lender doesn't think your child is qualified to handle a loan, you should be leery, too. If she were to lower the price tag of the car she has her eye on, would she be able to qualify on her own? If so, that's a far better move. Is the lender hesitant because she has a low credit score? That says she hasn't yet learned financial responsibility. By cosigning the loan, you're enabling your child to continue her irresponsible behavior.
For Daughters and Sons: Help Your Parents Plan Ahead
There are some important topics to raise with your parents while they're in their 50s and 60s, to help ensure their financial security in their 70s, 80s, and beyond. Too often, families avoid discussing the inevitable road ahead. Then, when aging parents find themselves in bad financial shape, there's less time and opportunity to deal with things effectively—which is why I advise having this conversation sooner rather than later:
1. Will They Be Able to Retire Mortgage-Free?
Your parents' goal should be to have no mortgage costs in retirement. If this isn't feasible, then your next conversation should perhaps be about combining households. Even before the recession took hold, a Pew Research Center survey found that 16 percent of households—accounting for 49 million Americans—included parents and their grown children.
2. Have They Considered Long-Term-Care Insurance?
If your parents can't afford a policy on their own, you and your siblings should consider helping with the cost. Spending a hundred dollars or so a month now to help with LTC premium payments could save you tens of thousands of dollars decades from now, if your parents eventually require nursing care.
3. Have They Run the Numbers on Their Retirement Income?
If your parents are considering retiring before age 66 or so, do they feel confident that they will have enough retirement income to support themselves for 20-plus years? If not, they may need to put off retirement.
4. Are Their Essential Legal Documents Updated?
It's not enough that they drew up a will or revocable living trust ten or 20 years ago. They—and you—need to make sure that those documents are current, particularly if there's been a death, divorce, or remarriage in recent years.
Next: For Grandparents: Build a Lasting Legacy