May 18, 2010

CANADA: More adult children aiding indebted parents

TORONTO, Ontario / The Financial Post / Personal Finance / May 18, 2010

Adult children are increasingly being asked to
co-sign loans for their credit-strapped parents,
says a new study out of Miami.

By Garry Marr, Financial Post

Adult children are increasingly being asked to co-sign loans for their credit-strapped parents, says a new study out of Miami.

I'm going to take a moment to let my father regain his composure.

He and most other parents would probably find the study done by to be contrary to the general order of the universe., an online marketplace for trading your car lease, found a 28.9% increase over the past two years in the percentage of parents asking their children to co-sign for a lease. "Over the last couple of months we really started to see more and more of this activity taking place," says John Sternal, vice-president of marketing and communications with "It's two-fold. It's not just co-signing. The kids, and we are talking people 21 to 28 with established credit, are signing up [on leases] so their mom and dad can use the car." These things surely don't happen in Canada, right? Guess again. Canadian kids co-signing loans for parents are up 13.2% during the same period. "The numbers are noticeably smaller in Canada due to a better jobs picture and a stronger overall housing market," Mr. Sternal says.

In the United States, credit has been destroyed for parents who walked away from their homes when real-estate prices plummeted. Their children in that 21-28 age bracket may not have bought homes so they escaped the credit crisis, Mr. Sternal says.

Laurie Campbell, executive director of Credit Canada, says it would not be surprising to see children come to the aid of parents. "It does happen. Is there an increase? Not necessarily. But there is an increase in the incidence of elderly people in debt. They're retiring before they can really afford to because of the economic downturn. Their investments have gone south. It's a mess for them," she says.

Ms. Campbell also has some words of wisdom for children co-signing on loans. "It's a dangerous game in the best situations and you need to look at why it's being done," she says.

Phil McKenzie, executive vice-president of marketing and public relations with Chartwell Seniors Housing Real Estate Investment Trust, says it's not uncommon to have children paying the freight for their elderly parents.

"There is no question a percentage of our residents are financially supported by their parents," says Mr. McKenzie, adding in 2009 the trend was for seniors to move back in with children to save money. "We were getting stories of children who got into trouble and were going to their parents and saying, 'Listen, rather than live in a retirement residence, come live with me. You're paying $2,800 a month, come live with us for $1,400. My wife lost her job and we could use the money.'"

Vince Gaetano, a mortgage broker with Monster Mortgage, says a problem for some parents has been a reduction in pension income. "If they are still carrying debt and they need to refinance their home for something, they don't qualify."

Mr. Gaetano says the practice in Canada for children helping their parents finance their home is to go "on title" for the property, meaning they have a vested interest in making sure there are no defaults on any loans.

"You have older folks who are self-employed, work for cash and have no declarable income. You'll see kids co-sign for that [reason]. It's one more debt obligation, so if they have to buy a home for themselves, they could run into problems. Usually, it's not that parents don't qualify at all, they just need something to get them over the hump," Mr. Gaetano says.

Garry Marr

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