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| The Basics | Should you worry about your parents' debts?
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With finances more complicated, the credit easier and the scammers relentless, more and more members of a frugal generation are deep in debt. Heres how youre affected -- and how to help.
By Liz Pulliam Weston
Todays seniors are more likely to be in debt than ever before -- and the amounts they owe are growing. Their children, struggling to save for retirement and pay college tuition, worry that mounting debts will leave their parents bankrupt and unable support themselves.
To make matters worse, this older generation is so notoriously tight-lipped about its finances that your aging parents may be closer to the economic edge than you ever imagined.
Parents usually try to hide it, said financial planner and long-term care expert Joan M. Gruber, author of Your Money: Its a Family Affair." The kidsare often shell-shocked when they see the extent of the damage.
Some statistics:
- Average household debt for those 65 and older rose 164% between 1992 and 2000, according to SRI Consulting Business Intelligence, to $20,302. Among younger households, debt loads increased by 92%.
- Half of senior households now carry credit-card balances, compared with fewer than one in five 10 years ago. The average balance has increased nearly 50%, to $1,900.
- Bankruptcy filings by people over 65 have more than tripled in 10 years, from 23,890 in 1991 to 82,207 last year.
- By the time they get to bankruptcy court, seniors tend to be deeper in debt than other filers. Most people filing for bankruptcy have unsecured debts, including credit-card balances, that just about equal their incomes, according to Department of Justice statistics. Bankruptcy filers over 70, by contrast, have credit-card debt that averages twice their annual incomes.
Obviously, not every senior is in dire straits. Researchers say this generation of older Americans is still the wealthiest ever, thanks to generous pensions, big increases in home values and a long bull market that is far from being wiped out by stocks latest gyrations.
Credit cards and keeping up appearances
Still, financial planners say, debt can sneak up on older Americans, particularly those who have gotten used to using credit cards to help pay the bills.
Widows seem to be particularly vulnerable, Gruber said. Elderly women in general have lower incomes than elderly men, and a woman whose husband dies can be thrown into a much worse economic position than she was before.
Dads pension may have died with him, for example, and he might not have purchased enough life insurance to ensure Mom remained comfortable.
The kids hear about life insurance, and they falsely assume its hundreds of thousands of dollars, Gruber said. They dont realize this generation bought life insurance in increments of $5,000 or $10,000.
Gruber has seen such strapped seniors continue to buy lavish presents for their children and grandchildren, and even give them loans, rather than admit theyre tapped out.
Other seniors dont try to keep up an affluent front, but instead are done in by medical emergencies, high prescription drug costs or a major home repair. They dont have enough income, Gruber said. They penny-pinch, but its not enough.
Or they may have always lived beyond their means, and their situations have just grown worse as they aged.
The addictions and the scam artists
People have spending addictions, borrowing addictions, said attorney Ed Long, executive director of H.E.L.P., a Torrance, Calif. nonprofit organization that offers financial education for older adults. And a lot of times, (the overspending parent) wont do anything about it.
Parents also can be victimized by scam artists, particularly if theyre not as sharp as they used to be. Gruber remembers one family she counseled where the parents both had mild dementia, and wound up on every telemarketing sucker list imaginable.
Every time anyone called to sell something, they gave out their credit-card number, Gruber remembered. They signed up for a home-equity line on their house and didnt realize they had to pay it back.
The womans daughter finally stepped in, paying for $30,000 in home repairs so the house could be sold and all the debts paid off. What was left is being used to pay the couples nursing-home bills.
If youre concerned about your parents spending, heres what you need to know:
- Your parents debts may -- or may not -- die with them. Technically, you cant inherit your parents debts, unless you co-signed a loan for them or took other actions that made you legally responsible for their bills. If they ran up their debts all on their own, your assets cant be seized to pay for them.
When your parents die, however, their estates can be tapped to pay their debts. That could mean selling the family homestead to cover the remaining bills.
- You may be able to help. You probably cant force someone with a spending addiction to quit, Long said, unless youre willing to go to court to take over as your parents conservator. Many situations wont require such extreme intervention, however.
If your parents are having trouble paying for home repairs or medical bills, for instance, you could offer to help financially or possibly arrange a reverse mortgage, which allows them to boost their monthly income by tapping the equity in their home.
If looming credit-card bills are a problem, you can arrange for your parents to visit a credit counselor or even a bankruptcy attorney if the balances have grown too large. Despite the increase in bankruptcy filings, many older Americans still strongly resist the idea of publicly going broke, said bankruptcy attorney Cathleen Moran, and often struggle far too long with impossible debts.
If your parents seem overwhelmed by basic financial duties, you may need to take over as bill-payer and record keeper. Approaching parents with the attitude that youve always been there for me, and it would be my pleasure to be there for you can win them over, Gruber said.
- You can get your own financial house in order. In some cases, its OK for grown children to accept money from their parents. If the folks are genuinely well off, they probably want to share the largesse, and giving money to you can help reduce their future estate taxes.
If your parents arent doing so well, however, its time to stop being a burden.
Being economically self-sufficient not only keeps you from dragging down your parents, it sets a good example for your own kids. Living below your means, paying off debt and investing for retirement are all smart practices that may even keep you from repeating your parents patterns.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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