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Financial Stress in the Family

Here are some guidelines that might help calm the waters during hard times

• Boomers’ aging parents may require financial support.
• Boomerang kids may need money and a place to live.
• 7 tips for when to say yes and when to say no to family.

Boomers Money and Kids

Mark Fredrickson

"Home is the place where, when you have to go there, they have to take you in," wrote the poet Robert Frost. But is it true? And how do you decide?

Well-functioning families respond to this challenge with love, advice and emotional support. But it gets tricky when what's needed is money. How much you help financially depends not only on your income and savings but on your family relationships and personal feelings about what your obligations are.

The multigenerational family is staging a comeback. In 2008, 16 percent of the population (49 million people) lived in households of two adult generations or with grandchildren, the Pew Research Center reports. In 1980, just 12 percent did (28 million people).

The recession is accelerating this trend. Older adults who lose jobs or run short of savings might have no choice but to move in with their kids. This includes widows whose husbands didn't leave behind enough money for them to live on, as well as frail older people who can't afford independent care in their own homes.

Boomers tend to think of assistance as running one way — from them to their parents or adult children. But family assistance runs in the other direction, too, according to studies conducted by Berit Ingersoll-Dayton, professor of social work at the University of Michigan, and her colleagues. Grandparents might babysit, do housework, cook or take the family out to dinner — activities that help their children reduce spending. They might contribute to a grandchild's college fund, make cash gifts on holidays or pay rent if they move in.

At the same time, the recession is also chasing young adults back to Mom and Dad — especially men ages 25 to 34. In a Pew Research poll, 13 percent of parents with grown children said the recession had forced a child to return home in 2009 after living independently.

The 2010 Families & Money Survey by the brokerage firm Charles Schwab found that 41 percent of parents provide some level of financial support for their children ages 23 to 28.

Here's where family values enter the picture. When it comes to helping adult children, parents and children may not think alike.

A study called "Helping Out the Kids," led by Frances Goldscheider, now of the Maryland Population Research Center, looked at what children and their mothers believe their financial obligations were under various scenarios. You won't be surprised to learn that, in general, young adults expected help more often than their mothers expected to give it.

The two generations agreed on support for education and that children should pay rent if they live at home. They differed, however, on how much support is due kids who marry or aren't in school.

According to the study, one-fourth to one-half of the offspring thought they should get some financial help when they start out in life, regardless of their circumstances. If they marry, a bit less than half of sons expected money toward their basic expenses; about a third of the daughters did, too. Not surprisingly, fewer than one-sixth of the moms agreed.

Whom do parents give money to more willingly? They're attuned to the youngest adults, such as new graduates, and to children in need — say, those with health or financial problems, according to research led by Karen Fingerman, professor of family studies at Purdue University.

When it comes to emotional support, however, the picture changes. Parents offer more friendship, advice and chat to children they perceive as high-achieving. It's more satisfying to talk with the "good kids" — vivid proof of parenting gone right.

Need aside, the big question is, how much money you can afford to give? It doesn't cost much to have a parent or child move in, if you have the space. But paying out of pocket is another matter. You cannot afford to deplete a retirement account, divert the regular contributions you make to a 401(k) or IRA, or leave a spouse short of money if you die. You won't be doing your kids any favors if either of you goes broke in your older age.

If a request for money comes in, don't say yes or no right away. Think about it, and discuss it frankly with your kids. Here are some guidelines that might help:

College tuition. Don't go into debt for a high-cost "dream school." You have a dream school, too — it's called Secure Old Age U. It offers no scholarships, and no one will help with tuition.

Don't cosign a college loan that you can't afford. What if unemployment strikes and the child can't pay? You are on the hook for every dime. If you cosign a private loan, you have to pay even if the child becomes disabled or dies — something many parents don't know.

Boomerang kids. If kids come home for a stay that will be prolonged, negotiate terms: rent, chores, hours, headphones for music and whether "friends with benefits" are allowed to spend the night. Spouses might also have to negotiate with each other about what the rules should be. Tensions rise when parents aren't on the same page.

Kids' credit card debts. Parents generally dislike rescuing adult children who overspend. On the other hand, you might want to help them out of a hole, especially if they just got out of school, are underemployed and if the interest rate is huge. You might say, "This once and never again." Or "I'll pay half and you do the rest." Or "I can't afford it, but I'll help you work out a budget so that you can pay the debt yourself."

Kids' medical debts. Be proactive about your children's medical insurance. If they're under 26, you can put them on your own group or private policy. If they're older, consider buying them low-premium, high-deductible health insurance. It's risky to leave kids uninsured. If they come down with a serious or chronic disease, you could lose everything paying for care.

Foreclosure. Don't use your income or savings to help your adult child stave off foreclosure. Once a borrower gets six months behind on a mortgage, it's almost impossible to recover. The child may be better off leaving the house and moving on.

Forced support. What about families that are estranged? Twenty-one states have civil "filial support" laws that can force you to help an indigent parent or child, even if you haven't spoken for years. These laws usually aren't enforced but are attracting attention as Medicaid budgets grow tight.

Take Pennsylvania — ground zero for experimentation with forced support. Nursing homes there are using the law to bill adult children for care provided to parents who failed to qualify for Medicaid, says Katherine Pearson, a law professor at Pennsylvania State University.

A harvest of gratitude. Researchers have found a strong tie between giving and receiving: Adults who provide more care to older relatives or children tend to get more from them in return, financially if there's need, or in the form of companionship and care.

Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. Her column, Financially Speaking, will appear monthly in the Bulletin and online.