After the great economic debacle of 2008/09 the recovery process has been very slow. Many retirees have been forced to assist their adult children who have found themselves in serious economic distress because of unemployment or underemployment. Also, a great many adult children have found themselves forced to move back in with Mom and Dad for the same reasons.
Incomes and wages have stagnated and the costs of living have risen much higher than those wages coupled with the lowering purchasing power of the money they do have. While letting your kids move back in with you may not be an ideal situation for either you or the kids it does not often have a negative effect on the finances of the parent.
There are situations where the children do in fact have a negative impact on the finances of their parents and for many that is when the parents are coerced into co-signing loans for the kids in order for them to purchase an item they may have otherwise been unable to purchase on their own.
The number one item in this category is auto loans and not far behind are parents co-signing on mortgages for their grown kids. The inherent dangers in doing this are multi-fold for the parents. The first thing to consider and the one that impacts most parents is when the child actually defaults on the loan because of a job loss or something similar and the parents are then on the hook for the full amount owed for the item purchased.
With an average retirement savings amount of around $100,000 this can put a serious dent in the finances of the parent for an item that they themselves have no use or desire for. The second hidden pitfall is when the adult child neglects to pay the bills on time and the credit score of the parent suffers by default. Many times the adult child will not even tell the parent that they are struggling and then miss payments or pay but pay late.
Either of these scenarios can have a serious negative effect on the credit rating of the parents and they may not be aware of this until they themselves try to obtain an item with credit and they find that their credit rating has been adversely affected without their knowledge and they now find themselves needing a credit card consolidation service to help patch things up. The third and probably most important element to consider before deciding to undertake the co-signing of a loan or mortgage for your grown kids is the potentially adverse effect the issue may have on your relationship with the child.
While they may not be too happy if you turn them down on the co-signing, the rift in the relationship will most likely be repaired much more quickly than if you do co-sign and they subsequently default. The long term effect that that may have on a relationship is usually much less likely to be repaired, and can cause long term negative feelings between the child and the parents as well as any siblings that may have a stake in the game.
Before you do decide to co-sign for your kids take a long hard look at the potential outcomes and decide if it is really worth it. For the kids, decide if wanting that item is really worth risking your good relationship with your aging parents and you may make a different decision.