We’ve been seeing a disturbing trend developing recently. As we meet with financially-strapped people, we’ve encountered a number of adult children who have had to continually bail out their aging parents. Their elders had over-used their credit or continued to live beyond their means, despite a drop in household income following retirement.
We’re not talking about physically (or mentally) dependent senior citizens who rely on their kids to help them occasionally with a bag of groceries, or an evening out at a nice restaurant with the family. No, these older adults are taking expensive cruises, gambling at the local casinos, purchasing large flat-screen television sets, and other household trappings. Generally, they’re living way beyond their means, with the help of credit cards and lines of credit. Worst of all, the majority have no investment income, and are subsisting on government pension pay-outs.
The end result of all this runaway spending? Their credit gets maxed-out, and their paltry government pension money cannot cover the rising debt loads they’ve accumulated over a period of time, sometimes many years.
That’s when many aging parents turn in panic to their middle-aged kids, who in some cases have their own children in university or college programs (as well as other sizable financial pressures, in the form a household mortgage or credit card bills). Unprepared for this additional financial pressure, many kids are reeling from the reality of dealing with parents who not only need their help badly, but are up to their necks in serious debt.
Throw into the mix a whole bunch of guilt about “helping out the parents who raised you”, and you have a nasty cauldron of debt, deceit and despair that can envelop an entire family. And while I need to point out those kids are under no legal obligation to bail out their parents when they behave in a financially-irresponsible manner, there is the issue of ethical and moral responsibility towards those troubled parents.
“Parents who don’t make conscious decisions to invest in their retirement and live below their means DO have a choice,” suggests author G.E. Miller in the blog 20SomethingFinance. “They are choosing present or future financial entitlement and opting to think about themselves, instead of the family members that they eventually become dependent on.”
Let’s take this scenario a step further – according to the statistics out there right now, only a meager 15% to 19% of older adults have any sort of acceptable savings put aside for retirement (through their own negligence, or as a result of the recent recession and its affect on everyone’s investments). This means the other 81+ percent of seniors have only two choices: (a) either continue working to maintain their high-flying lifestyles and try to make every attempt to pay down the rising debts (we’re seeing a lot of seniors working at the local Timmy’s or Wendy’s restaurant to make ends meet, for example) or (b) rely on the kindness of middle-aged children to carry them through their senior years.
“If adult kids are uncomfortable with the idea of supporting their parents after said parents burned through their money irresponsibly, then that needs to be part of the conversation before the parents’ money runs dry,” suggests Carolyn Hax in a recent article in The Consumerist. “For example (the conversation may need to sound like): ‘If you’re in danger of running out of money, then we all need to start planning now, because we haven’t planned on supporting you.”
Financial planning specialists and social workers who specialize in seniors’ issues, can be brought in to help determine the extent of the damage. These trained professionals can help parents (and their children) to get financially organized. Or, as we’re seeing in a lot of families lately, children can bring their parents to a Licensed Insolvency Trustee for an honest discussion of the parents’ debt problems.
If a parent is still young (and healthy) enough that it makes sense, a Consumer Proposal (or settlement offer) to the creditors can be filed by the Insolvency Trustee on their behalf. The parents would each make one small monthly payment over a multi-year period towards the settlement of their debts. Once the agreed-upon settlement is paid in full, they would receive a Certificate of Completion from the Insolvency Trustee (who administers the Consumer Proposal for them), and would be effectively debt-free from that point onwards.
In the case of a parent of advanced age or a parent who is obviously infirm (where a 4 or 5 year Consumer Proposal just doesn’t make a lot of sense), a simple Personal Bankruptcy filing can be made with the help of the Insolvency Trustee. The filing places the parent(s) under the protection of the Bankruptcy Insolvency Act, stopping all legal actions from their creditors dead in their tracks. If the parent(s) have little in the way of monthly income or assets of value (for example, little equity in a matrimonial home, for example), a simple bankruptcy filing lasting anywhere from nine to twenty-one months might be exactly what the doctor ordered. Once all duties are completed successfully, the bankrupt would be discharged from their debts.
The most important thing to remember is this: help IS available to correct these problems. But acting quickly will ensure a parent’s debt load doesn’t get out of control before it’s more difficult to resolve. Whenever possible, a child that has been made aware that their parent is having financial difficulties, should contact us to speak about these debt issues. We are here to help and to advise and will work with the family to keep the creditors at bay and debt pressures to a minimum.