Smart Consumer: Why our lender of last resort is increasingly. . . our parents
It goes largely unnoticed, but has become a sad feature of economic mess we are in. Research conducted for this newspaper shows that one-in-four adults have borrowed from their parents at some point during this recession to make ends meet.
The findings give a whole new meaning to the phrase, family support.
It seems it is not just the filthy rich who financially support their offspring, but it has now become something of a necessity for the families of Middle Ireland as well.
It is now a case for many of being middle aged and middle income, but still relying on mum and dad for money.
Massively indebted, with jumbo mortgages, and children to support, these people are suffering from job losses, wage cuts, social-welfare decreases and child-benefit reductions.
All this has left many formerly prosperous families with nowhere to turn to expect their parents for financial help.
What this means is that our banks may be bust and no longer lending, but the Bank of Mum and Dad continues to dole out cash.
Some 25% of adults have been forced to turn to their parents to make ends meet, the exclusive iReach survey on behalf of Irish Life and the Irish Independent indicates.
But when it comes to young adults, parents are an even more popular lender of last resort.
More than four out of 10 young adults have been forced to go cap-in-hand to mum and dad for money, the survey found.
Many parents may feel a sense of guilt about the financial fix their offspring are in. This is because up to one-third of parents of first-time buyers went guarantor or provided money for a deposit during the property bubble.
The parents feel they have contributed to the mortgage madness, and now need to make good the mess.
Mark Atkins, who advises people on debt issues for a fee, said he comes across lots of situations where parents are helping out their adult children to pay debts, or to pay for something like car insurance.
"It is happening, without question. We see parents making lump-sum gifts and providing ongoing support, especially to pay something like tax and insurance on a car where a car is needed for a job," said Mr Atkins of Debt Plan Ireland.
He said it was not surprising that parents were helping out sons and daughters in dire need. In some cases, children were simply getting an inheritance ahead of their parents' death.
However, he warned that parents financially supporting their offspring is fraught with dangers.
"These kinds of things will lead to relationship breakdowns if they are not dealt with properly."
Mr Atkins said it would be wise for families where money was being passed around to talk through the situation and get a specific agreement on how and when the money will be returned, if it is to be returned, once the indebted son or daughter gets back on an even keel.
"People need to discuss something like this as a family, especially if there are other brothers and sisters involved who are not getting support."
Mr Atkins said he has not seen any evidence of families drawing up contracts when they lend and borrow money from each other, but feels that might be a useful way to go.
In some cases the debt adviser has dealt with, sons and daughters have had to move back in with their aged parents.
While grandparents might welcome having their grandchildren around their house, after a while tempers begin to fray for everyone and the 'boomerang children' begin to grate on the elderly parents.
The level of borrowing by adults from their parents is often small, at around €1,000, but that can make a difference in feeding children in families where jobs have been lost.
Frank Conway, Director of Moneycoach.ie -- a personal-finance website -- says: " In some cases, the borrowings could be relatively small, say €1,000.
"However, we have encountered some situations where people claim to have borrowed significantly more. Amounts of €5,000, €7,000 or even €10,000 or more would not be unheard of."
In many cases, people borrow from family members as a means of "keeping the wolves from the door" and out of fear of the unknown.
Some people fear what may happen if they do not pay without first having opened a dialogue with all of their creditors.
In more cases, Mr Conway says, consumers simply act on duty. They feel they must make every single effort to pay their bills on time and in full.
Mr Conway says he has come across some cases where consumers claim that creditors ask people whether family members can support them.
"In other words, it appears that while nothing official is ever said to consumers that encourages them to borrow from family, the message seems to be that some creditors are prepared to jog people's memories on the options they should be exploring to keep their repayments up to date."
He reminded mortgage holders struggling to meet their monthly repayments that they have strong protections under the updated Code of Conduct on Mortgage Arrears.
Under this code, mortgage lenders must engage with borrowers if they anticipate a difficulty paying their mortgage. And mortgage holders do not have to be in arrears. The updated code, which came into effect at the start of this month, is designed to address problems before homeowners get into arrears.
"I would encourage anyone who is experiencing difficulty or anticipates a problem paying their debts to begin tracking their household budgets through a budgeting structure.
"For example, they should begin to track spending by insisting on receipts for all purchases," Mr Conway said.
The fear among some personal-finance experts is that this country will see a situation similar to what is happening in Britain, where parents are being forced to postpone their retirement to meet the rising costs of supporting their heavily indebted offspring.
The problem is that if the parents cannot afford to retire, it means younger people are not going to get a chance to take their jobs and get back on track any time soon.