Should parents bail out their kids?

By Liz Pulliam Weston

Should you bail out your kids? You probably think my answer is going to be no.

And that's a fair guess if the adult child is an able-bodied and ungrateful deadbeat, or if the parent is financially strapped.

Otherwise, though, this is a far more complex issue than it first seems.

It was easy, for example, to find money experts, financial planners and therapists who roundly condemned "economic outpatient care," as the practice was dubbed by "The Millionaire Next Door" authors Thomas J. Stanley and William D. Danko.

These authorities gave me terrific quotes about how handouts hurt parents and kids alike -- and then many proceeded to tell me how they'd handled the loans, gifts or matching funds when their own adult children needed financial help.

• Talk back: What's your view on bailing out struggling kids?

I don't think the experts are being hypocritical. They reflect the challenges of parenting in the 21st century, when the children of the relatively affluent baby-boom generation face more economic uncertainty, bigger debt loads and more financial temptations than their parents did.

Times are harder

Most baby boomers had the economic winds at their backs. They graduated into decent job markets and enjoyed strong appreciation of their homes and (for the most part) stock portfolios.

Today's graduates, by contrast, are a bit more behind the eight ball:

• A rapidly decelerating economy means college graduates are facing the worst job market in several years.

• Instead of getting free money in the form of grants to pay for college, they're taking out student loans -- an average of about $20,000 at last count, an amount that's nearly doubled since the mid-1990s.

• And then there's the demon credit card, pushed on college campuses today with a vigor unheard of a generation ago. The majority of students now have credit cards, according to studies by student lender Nellie Mae. The average balance was $2,864 for college seniors in 2004 and $8,612 for graduate students in 2006, the latest years for which statistics are available.

Graduating back home

Those who graduate deep in debt often find it difficult to save for other goals, such as home down payments or retirement, further delaying their entries into fiscal adulthood.

Erik Stout, 28, lived at his parents' Horsham, Pa., home for a year after college while paying down $10,000 in credit card debt and $28,000 in student loans. Many of his friends who got apartments after school, he says, also boomeranged back home after a few months because they couldn't keep up with their bills.

Stout's stay at home ended when he came across a good deal on a house, which he bought. Now he's married.

"My wife and I had some initial bumps in terms of merging our finances together, but things are pretty stable," Stout said. "Neither one of us are flashy people, and we try to watch what we spend on a daily basis."

By contrast, some of Stout's friends used their time at home not as a launching pad for their futures but as a way to keep living large.

"Most graduates think that because they don't have expenses, they can spend their whole paycheck," Stout said. "They should get a handle on finances and start a budget. . . . This should be the time they are maxing 401(k) contributions or stashing (cash) in money markets."

Helping can backfire

Kids who don't get their finances under control in early adulthood may never get their acts together. One bailout can lead to another, as children become dependent on their parents instead of economically self-sufficient.

"Parents who feel compelled to financially support their children do more harm than good," contends psychologist Gary Buffone, the author of "Choking on the Silver Spoon: Keeping Your Kids Healthy, Wealthy, and Wise in a Land of Plenty." "Typically, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more."

A financial rescue can have emotional repercussions for the whole family as well.

"(Parents) have to ask themselves, 'Is giving money healthy for our relationship?'" said Los Angeles psychologist Eileen Gallo, a co-author of "The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Kids." "When adult children take money, they can feel dependent, and those feelings of dependency can cause resentment."

Parents can feel resentful, too, about being constantly hit up for cash. But sometimes they keep stepping in as a way to keep the apron strings firmly tied.

"Parents may feel the need to keep (the kids) close to home," said Elaine Cole, a therapist in Sherman Oaks, Calif. "It can be about power, control, loneliness. . . . (Parents) may defend against that with dollars."

Continued: 6 keys for a concerned parent

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