Society talks a lot about paying it forward and doing something good for someone else, but the older you get, the more you may find yourself paying it backward. That is, lending or giving money back to your parents, who once upon a time bought you food, clothes, toys and just about everything else you needed to get through childhood.
But even if it’s an easy decision to help your parents with their money problems, that doesn’t mean it’s easy to do.
According to a 2013 Merrill Lynch Retirement study, which included 2,104 respondents over age 47, only 16 percent of individuals 50 and older had provided financial support to parents or in-laws in the past five years. But what they were spending was significant: $14,900 on average.
So before you lend or give your parents money, consider the following.
Once you start, it may be hard to stop. Are you giving or lending money in what’s likely a one-time event to help them get through an unusual bad patch? Or is this the start of a new phase in your relationship? If so, is this something you can handle?
“Many families are in the precarious situation of providing financial support to aging parents, which in some instances, can go on for a decade or longer,” says Timothy Burke, CEO of National Family Mortgage, a Waltham, Massachusetts-based company that helps family members loan each other money for mortgages. While most of the company’s loans are from parents to their adult children, “we’re seeing a significant increase in clients making mortgage loans to their parents,” he says.
Even if your parents don’t have mortgage or rent issues, they may have trouble paying for medications, hearing aids, a wheelchair and other amenities.
Try peering into the crystal ball. Whether you can handle your parents’ ongoing financial needs may be an unknown, or it may not matter — you may feel you have no choice but to make it work. Try to determine what future expenses you’re likely to encounter so you can budget accordingly.
“It’s really important to have a realistic picture of the situation that you are getting yourself into,” says Kimberli Taylor, a 40-year-old paralegal in Torrance, California.
Three years ago, Taylor began giving money to her mother, who was recovering from spinal fusion surgery and whose husband wasn’t caring for her. “After talking with her doctor, I started visiting every other weekend and buying food and Ensure at roughly $500 a month,” Taylor says. “That continued for a year while I worked with local adult protective services to move her from the home.”
Meanwhile, Taylor still buys groceries for her mother and pays for other expenses. As she says, “What can you do?” Her mother simply can’t make ends meet the $1,500 a month she gets from Social Security.
“This year, her insurance has been billed over $150,000, some of which carried over from her heart attack last year,” Taylor says.
Taylor’s annual salary is $45,000, and her household income was just over $100,000 last year, although her husband recently retired at age 55. The main impact her mother’s expenses have had so far on Taylor is that it sidelined a possible plan to go back to school and get her bachelor’s degree.
Prepare family members — and yourself. The more money and time you spend on your parents’ needs, the less money and time you’ll have for your own.
So if you have family members, like a brother or sister, who may be able to help out, do what you can to enlist their aid early. You want to have discussions about who will pay for the wheelchair ramp or the monthly medication before everyone assumes you will be the only financial caregiver.
Also recognize that you may have some emotionally difficult days ahead of you. “This can be incredibly stressful for folks who want to help their parents but are also concerned about saving for their own retirement needs,” Burke says. “Stress is compounded when adult children trying to lend a helping hand become resentful of siblings who are not willing or able to provide additional financial support.”
Be businesslike if you can. It’s one thing if you’re giving your parents money you know you’ll never get back, but in some cases, your mother or father may insist on a loan. Michael Clark, a certified financial planner in Orlando, Florida, says “borrowing and loaning money to family members is a fragile subject,” but he advises his clients to “follow the same rules they’d apply to loaning to anyone.”
In other words, put the details of the loan in writing, he says. And don’t lend money if you can’t afford it. “Examine your own budget and determine whether or not lending money would jeopardize your financial situation and future,” Clark says.
Even if you’re careful, you may not get your money back. Or, at least, it may take awhile. No matter how businesslike your arrangement is, you’re not dealing with businesspeople. Clark recommends his clients “acknowledge the emotional connection” and “consider the fact that the loan may end up as a gift and to treat it as such.”
He has a point. Several years ago, Donna Barker, a 48-year-old entrepreneur in Vancouver, Canada, sold her house at a profit and was in the position to lend her father some money. He needed it.
Barker’s father had started building his own house at the time he was diagnosed with cancer in 2009. “His building expenses went up since he had to hire more people to help, as did his health care costs since he used treatments that aren’t covered by Medicare,” Barker says.
Over the next four years, Barker lent her father $55,000. They even drew up contracts for the loan. “Not with an attorney, but signed by each of us and my mom,” Barker says. “Dad agreed to pay 5 percent interest and to terms that would ensure I was repaid when he passed away, drawing from his $100,000 life insurance policy.”
Barker’s father passed away in July. His last words to her were: “Please don’t make your mother repay the loan if she’s not comfortable with how much money she has.”
Now, several months later, Barker’s mother is nervous about repaying the loan. Barker has so far received $25,000 back, “but the remaining $30,000, who knows?” she says.
Barker doesn’t regret helping her parents, and is sympathetic to her mother’s concerns. “How does a child insist on being repaid when a 72-year-old parent is scared about her financial future without her husband’s pension money?” she says.
That’s what’s so tough about lending or giving money to parents. If they need your money, whether or not you have it to give, you just may anyway.
Taylor probably speaks for a lot of sons and daughters when she says, “I could get angry over the amount of money I’ve spent over three years, but in the end, it comes down to whether I’d rather have the money or my mom. And I’d like to keep her around a little while longer.”
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When You’re Lending (or Giving) Money to Your Parents originally appeared on usnews.com
