The Parent Trap: Help for Children Can Go Too Far, Barron's Says

(Bloomberg) -- The U.S. college-admissions scandal strikes the main note of Barron’s March 25 cover story, “Parent Trap,” about moms and dads wanting to help their children but often going too far, even at the risk of harming their retirements.

Setting some boundaries on when to help and when to sit back is best for kids, no matter what they’re going through.

Parents are putting two times as much toward financially supporting their children as towards retirement accounts, Barron’s said. Almost 80 percent of parents give some financial support to adult children, according to estimates by consulting firm Age Wave. That comes out to $500 billion a year, twice what’s going to retirement, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave.

Addiction: The New Retirement Threat

One of the biggest threats to people’s retirement, Barron’s found, is fighting their children’s drug addiction. It’s the number one cause of accidental death in the U.S.

With addiction, affluence can even make things worse. Families can spend hundreds of thousands of dollars and get no closer to long-term recovery.

“Some people can throw $500,000 at the problem, and it’s not enough,” Steve Feldman, a case manager at Feinberg Consulting in West Bloomfield, Michigan, told the newspaper.

Parents should pay for things such as rent directly because giving drug abusers cash is dangerous, says Catherine Seeber, a financial planner at CapTrust, who has had the experience with her own son.

Paying for College

Retirement accounts should be a last resort when paying for college, especially now that the outlook for stock returns is about half what it was in the past 10 years, Barron’s says.

Barron’s advice: Secure an emergency fund, max out retirement accounts and then contribute to a 529 college plan. For parents with resources but not liquidity, Angie O’Leary, head of wealth planning for RBC Wealth Management in the U.S., advises using nonpurpose loans to leverage stock portfolios.

“If you need cash flow to meet a tuition payment and can pay it back, this allows you to have the money to do so without liquidating in a downturn -- or selling a stock with good momentum,” she says.

College costs are rising, more 25- to 35-year-olds are moving in with parents, and student debt is becoming senior debt. In six states, the amount of student debt held by people age 60 and over has more than doubled since 2012.

After kids graduate college, paying for vacations, Uber rides and car loans can prevent adults from becoming financially independent. But when an adult child is mentally or physically ill, tough love is harder, Barron’s says.

“When money and emotions mix, parents don’t make decisions in their best interest,” says Edythe De Marco, a financial adviser for Merrill Lynch.

©2019 Bloomberg L.P.