Beating Broke

Personal Finance from the Broke Perspective

How to Handle Financially Toxic Parents

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Your parents should provide for you as you grow up, but what happens when they ask you for money?  Should you give money to your parents?  The answer to how to handle financially toxic parents depends on both you and them.

How to Handle Financially Toxic Parents

Reasons Your Financially Toxic Parents May Need Money

There are many reasons your parents may ask you for money.  Some are valid reasons, and others, not so much.

A Job Loss

Sometimes the unexpected happens.  Your parent may find him or herself out of a job and in need of money.  Our neighbor, Rob, worked hard all his life.  Because he married young and he and his wife had children in quick succession, Rob never got to go to college.  He worked as a janitor.  While he and his wife were responsible with their money, they just didn’t have much money.  They couldn’t establish much of an emergency fund because his income just paid the bills and covered the expenses of his seven children.

When Rob was 59, he lost his job.  At that age, he had a difficult time finding a new job.  In this situation, helping your parents out, if you’re financially able, is the right thing to do.

An Unexpected Funeral

How to Handle Financially Toxic Parents
Photo by Rhodi Lopez on Unsplash

If your parents no longer have life insurance and one dies, how does the other pay for the funeral?  Funerals can run upwards on $10,000 or more.  If your surviving parent doesn’t have the money to pay for the service and burial, contributing to this expense can be a nice gesture.

However, it is always better to plan for the future. If your parents don’t have a life insurance plan, talk to them directly. Remember, it’s never too late to have a policy. Burial insurance can be a savior by covering the funeral costs. Burial life insurance is nothing but a permanent whole life policy with small death benefits. Insurance experts also call it final expense insurance, funeral insurance, etc. You will be surprised to know that most of the big companies provide burial insurance for seniors. So, if your parents don’t have a policy yet, inspire them to have one and prepare for the unexpected.

For Younger Siblings

My friend, Joan, became friends with another girl, Leslie, in high school.  Leslie had an unstable home life and eventually moved in with Joan and her family.  When we all graduated high school, Leslie went to college for engineering and also worked full-time to support herself.

At regular intervals, Leslie’s mom, who still had four younger children at home, called Leslie and asked her for money.  For years, Leslie gave money to her mom because she felt guilty.  After all, her stepdad had just left, and her mom had to provide for the younger kids.

However, over time, her mother continued to spend irresponsibly, but Leslie didn’t feel like she could say no because if she did, her younger siblings would do without.  Leslie begrudgingly gave her mom money until all the kids were out of the house.

Bad Money Management Skills

How to Deal with Financially Toxic Parents
Photo by allison christine on Unsplash

Now, I’m on the flip side and am old enough to have friends who have adult children.  One of those “friends” (and I use the term loosely), Heather, continually writes on Facebook about her money troubles.  These posts always appear as thinly veiled requests for money.

In the most recent post, Heather wrote about the financial troubles she and her husband have and went on to say that their 20  year old son, who is working two jobs and taking a full load of college classes, is giving them money to pay for their utilities and gas to and from work.

However, in that same week, Heather posted about going out to eat two different times and having a manicure and pedicure as well as getting her hair highlighted.

Say what?!

Should You Give Your Parents Money?

As an adult, if you find yourself in the awkward position of deciding whether or not to give your financially toxic parents money, there are a few questions you should ask yourself:

Can you afford it?  Do you have the money to give your parents?  Can you loan them money without causing your own financial hardship?

Why do your parents need the money?  Are your parents in a truly tight financial spot because of unemployment, sickness or another issue?  Or, do they have a history of mismanaging money and now, like so many times before, they’re in a bind?

Are they trying to change their situation?  If your parents are facing financial difficulties, are they taking steps to try to improve their situation?  Are they wisely cutting expenses and learning how to manage their money so they won’t be in this position again?  You probably can’t give them advice here because they likely won’t listen, but you can recommend your favorite financial blogs or books to help them get a better handle on how to manage their money.

What does your spouse think?  If your parents are routinely asking for money, your spouse may be annoyed or angry.  After all, you’re giving away money that now can no longer be used for your own retirement fund, household needs, or for your kids.  If your spouse is tired of you giving your parents money, please listen.  The last thing you want to do is make your own marriage unstable to enable your financially toxic parents bad money habits.

Money arguments are the number one cause of divorce.  Giving money to your parents frequently can definitely lead to tension and disagreements in your own marriage.  Is enabling your parents worth it?

Should You Cut Your Parents Off?

If you do decide to lend your parents money, how often can you do so?  You should set boundaries for the limit of your generosity in the beginning.  Leslie, the girl I went to high school with, regularly gave her mother money for eight to ten years.  Then, as her younger siblings grew up and left home, Leslie saw that her mother often caused her own drama and financial woes.

She cut her mom off about 15 years ago, and now she rarely hears from her.

I don’t know how long Heather’s son will lend his parents money, but I hope it’s not for too long.  There’s no reason why a son should be financing his mother’s highlights and pedicures when he himself is working two jobs to pay his way through college.

Finally, if your parent is in dire financial straits due to addiction or gambling, you shouldn’t lend them money.  Using tough love here would be the best advice.

Have your parents ever asked to borrow money for you?  If so, how did you handle it?  

Are you a parent?  If so, have you ever asked to borrow money from your children?

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Parents Tax Bill Rising?

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Tax season is right around the corner.  Before you know it, we’ll all be holed away in some corner of our house punching numbers into our computers as we try to squeeze a few more of our dollars back from the IRS.  That’s a task that might get a bit harder for some parents this year.

According to this CNN Money report, on January 1, 2013, several tax credits are set to expire.  And, unless Congress manages to pull it’s collective head out of a dark place and extend those credits, many of our tax returns will be quite a bit heavier come April.  For parents, specifically, this could cause quite the burden.

Specifically, the Child Tax Credit, Earned Income Tax Credit, Child/Dependent Care Credit, and the American Opportunity Credit will expire.

  • The Child Tax Credit would be reduced to $500 per child, instead of the $1000 it’s currently at, and would no longer mean a refund of any excess credit above and beyond tax liability.  It’s debatable whether it should be giving that excess credit as a refund, but I’d certainly like to see them keep the credit at the $1000 number.  This is one that we use on our taxes every year, and I know it’s been quite beneficial.
  • The Earned Income Tax Credit will have several of it’s key income thresholds reduced back to previous thresholds.  The maximum credit will also be reduced by 5%.  I believe we exceed the threshold for this one, but reducing the thresholds will eliminate it for quite a few families.
  • The Child/Dependent Care Credit, like the EIC, would see several of the maximum credit and reportable expense reduced.  This is one that I know we’ve used every year, since we’ve always had some sort of child care expenses.  Could mean a significant loss of credit on our tax return.
  • The American Opportunity Credit is a credit that replaced what was called the Hope credit.  It allowed for a higher amount of credit and for some of the credit to be refundable to the tax filer.  If it expires on January 1, it will revert back to the hope credit which means the credit will be reduced by $700, and also reduced to something that can be claimed 4 years to something that can be claimed only 2 years.  The Hope Credit is also a non-refundable credit, so if you have no tax bill, it doesn’t mean a larger refund like the American Opportunity Credit would.  Again, I don’t necessarily agree with the refundability of credits, but this could mean a huge difference for some families still paying for college expenses.  I’ve never been able to use it since I was well out of college when it was put into place.

That’s just four of the parts of the tax code that are set to expire on January 1 if Congress doesn’t act on it.  In a Presidential election year, you can bet they won’t make any moves on it until after election day, so they’ll have a very short window in order to get something done.  I truly doubt that they’d let them all expire, but depending on the outcome of the election, it could be a pretty dirty fight.

How many of you have used these credits?  Would their loss on January 1, 2013 change your tax bill considerably?

A Simple Technique to Help Parents Meet Their Savings Goals

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Having kids is not cheap.  There are many expenses that are associated with small children that are hard to get around no matter how frugal you are.  For instance, if you are a dual income family, you must pay for daycare and disposable diapers as most daycare centers will not accept cloth diapers.  In our area, daycare for an infant can run a family $1000 a month.  You may rejoice when your child enters preschool because you will find an extra $1000 a month in your pocket.  Instead of just absorbing that money back into your budget, why not earmark it for something else?

Imagine if you took that $1000 a month and invested it?  That is $12,000 a year!  You could continue to pay it to yourself, perhaps setting up a college fund for your child with the money you used to pay in daycare.  In five years, you would have $60,000.  After that, just let it sit and earn interest for the next eight years, and your child’s college education would be largely paid for.

JJ Following The Girls To School free creative commonsWhat if one of the parents decides to stay home to care for the children, in part to avoid expensive daycare?  They may not have the $1000 a month to put away.  While this is true, there are still plenty of other expenses associated with young children that you eventually won’t have to pay.  For instance, we are paying roughly $75 a month to diaper our two girls, and I anticipate within the next 6 to 8 months, both girls will be out of diapers.  It would be very easy to just absorb that $75 back into the budget, but that isn’t what I plan to do.  Instead, I plan to set up a college education fund for my kids and invest that $75 a month.  Yes, $75 a month will not add up very quickly, and it certainly won’t put even one of my children through college.  But it is a start, and it is more than we are putting away right now.

Likewise, if you have a monthly car payment, when the car is paid off, use that money to pay yourself a car payment so you can pay for your next car in cash.  If you bought a car 7 years ago, and had a monthly payment of $475, and you paid off the loan in four years and continued to make that monthly payment, you would now have $17,100 set aside for a new car, which would be enough to buy a nice, one to two year old car for cash.

You may argue that the car payment or the daycare payment was a hardship and that now that you no longer need to pay those payments, you need the money to pay for other things.  This might be true, but if your child was still younger than preschool age, you would find a way to make the payments because you would have to.  Or, if you now have other expenses for your child such as after school care for $300 a month, deduct that from the $1000 you used to pay for daycare and save the remainder.  If you can maintain that mindset, you will find yourself reaching your financial goals quicker than you imagined, simply by not seeing that money as “free money” to now spend as you will but rather as money to continue to invest in your and your child’s future.

photo credit: Pink Sherbet Photography