Another threat to retirement savings – your kids

Parents who have watched the financial crisis destroy half of their retirement savings in the last few months have been warned to look out for another danger on the horizon – their own children.

Parents who have watched the financial crisis destroy half of their retirement savings in the last few months have been warned to look out for another danger on the horizon – their own children.

Paul Brennan, principal of Sunshine Coast law firm Brennans Solicitors, says he working with a growing number of clients who have been asked by their children to bail them out of financial stress.

He has even come up with a name for the trend: KIDDERS, which stands for “kids in debt, diligently eroding retirement savings”.

During the boom economic times of the last decade, many parents encouraged their children to buy homes and investment units, enter business deals and invest in shares. In many cases, the parents went guarantor on their children’s loans.

As these financial arrangements unravel, the kids are asking their parents for money to stave off banks or other financiers, sue unwilling partners and defend court actions.

Brennan’s advice is simple: “You’ve got to try some tough love.”

He says parents getting involved can actually make things worse, as it gives debt collectors or financiers a fresh target, and one seen as having deep pockets.

“Once the creditors know there are parents around, they’ll start pushing even harder.”

He also warns against panicking if a child reveals they are being sued by a creditor and points out that legal action will often take some years to run its course – by which time your child’s circumstances could be much different.

“You don’t have to run around like the ceiling is falling in – things take a lot more time than you think.”

His advice to parents of indebted children is to encourage their offspring to take what he calls an “open kimono” approach.

This involves writing to all of the child’s creditors, explaining how desperate their situation is (perhaps by providing a full list of debts owed) and offering some kind of very small, affordable settlement.

Brennan says clients are surprised at how well the tactic works.

“Once the creditors know they can’t get blood from a stone, that will stop them in their tracks.”

Related stories:

• Generation-Y keeping debt collectors busy
• The ugly end of our great debt delusion
• Consumer sentiment drops to historic lows as household debt grows