In this episode, we are joined by CreditCards.com industry analyst, Ted Rossman, to discuss their recent study about how parents would help their children pay for medical debt.
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Highlights of this episode include:
- A look at “good debts” and what they mean to parents who help pay their children’s debts.
- What form of debt would 57% of parents consider not acceptable for financial help.
- Ways that moms and dads may look differently at helping pay off their children’s debts.
- Actions that parents can take to help their children manage debt more responsibly.
- And more…
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.
Medical debt is a growing problem across the United States. Recently, CreditCards.com conducted a survey that asked parents what they would do in various situations if their child asked for help with debt. To share the results of this survey, I’m joined by CreditCards.com analyst, Ted Rossman.
Ted, welcome to the show.
Ted Rossman: Thanks for having me.
Mike: So Ted, why don’t you set things up for us. Tell us a little bit about the survey and what you were specifically looking at.
Ted: Sure! So, we surveyed parents about whether or not they would help their kids with debt. And we found that, overwhelmingly, parents are feeling very generous on this topic.
We found that the average parent would give their child about $5700 to help pay debt without the expectation of being reimbursed. And if they do expect to get their money back, it was more like $8000.
Mike: Wow! And one of the areas that you looked at, among others, was medical debt. And certainly, I think when I looked at the survey results, that was perceived a little bit differently than something, say, like gambling debt.
Ted: Medical debt was far and away the least objectionable type of debt. Sixty-eight percent of parents said that they would have no objection to helping pay their child’s medical debt. And that makes sense. Obviously, our health is so important to us.
We saw some of the other least objectionable debts were things like student loans and utilities and mortgage and rent. And what I think what all these have in common is that they can be considered good debts, if you will. Obviously, any debt is going to carry some consequences. But at least these are debts that either have to do with your well-being, your standard of living, in the case of student loans, hopefully raising your skills and earning potential down the road.
And then, at the other end of the spectrum, gambling, by a wide margin, was the most objectionable type of debt. Fifty-seven percent of parents would never help pay their child’s gambling debt. And in second place was credit cards. But it was a pretty big gap. That was only 16%.
Mike: I found that interesting that, in the survey, moms and dads looked at paying debt differently and looked at helping their children with their debt a little bit differently. Tell us about that.
Ted: There was a really big difference between moms and dads which was interesting and surprising. We found that fathers were twice as likely as mothers to say that they would give a child more than $20,000 to bring them out of debt—just really interesting, a little bit hard to explain.
We talked to some experts who gave us a few different theories. One was they talked about how, in many households, men are still the main breadwinner, so to speak. So there may be something to do with that.
We also found some experts saying that, for a lot of men, money is power, and that the ability to help their child out of debt makes them feel good, maybe even more so than it would for a female.
Yeah, it’s hard to explain. But it definitely shows that if you’re a child in debt, it might be better to ask dad rather than mom.
Mike: No comment there. Obviously, medical debt is a major issue across the country. Did you get any sense as to why young people are falling into medical debt. I think the perception is that “Hey, look… I’m young, I’m healthy. Maybe I don’t need health insurance” or “maybe I need less of it.” Was there any sense as to why young people might fall into medical debt?
Ted: We don’t know for sure. But I do think you’ve hit on something there about the young invincibles, that there could definitely be some young people that were uninsured or under-insured or perhaps over-confident and, unfortunately, did have to take on some medical debt.
We also know even more broadly speaking that, obviously, healthcare is expensive. And in fact, medical debt is the number one cause of bankruptcy. So we really see people of all ages, unfortunately, getting in over their head at times when it comes to medical debt.
It’s great when parents are able to help out with this. And certainly, anybody who can, I think, would try to do that. Talking from a consumer advocacy standpoint though, we do want to make clear that while any sort of financial assistance is always appreciated, we don’t want parents to over-spend and then put their own financial well-being at risk. It’s kind of like that thing on the airplane about putting on your oxygen mask before helping somebody else. There’s really no such thing as a retirement loan.
So, if a parent, especially an older parent, gives away a whole bunch of money to their child, and then can’t finance their own retirement, that’s a vicious cycle that could end up landing right back on the child’s lap with respect to helping the parents.
So, with things like medical debt, there are other options. There are the ability to negotiate payment plans with hospitals and healthcare providers. Short of that, you might even consider something like a personal loan or even a 0% credit card. We see offers as long as 20 months with no interest. So there are some other options there if you find yourself in a bind.
Mike: And I noticed that, in the study, it did go on to talk about some other things that parents could do to help their children manage debt more responsibly. Can you talk about those?
Ted: I think it’s really important when we’re considering this issue of parents and children and debt. Any sort of assistance I think should be either plain old one-time only or once in a great while. We definitely don’t want this to be an ongoing, every month, every other month, several times a year kind of issue.
If it’s to that point, I think there’s a bigger financial issue going on, whether it’s living beyond your means or not budgeting and saving appropriately. We all get that life happens sometimes, and there’s a car breakdown or a medical emergency or a lost job. But when it comes to routine, ongoing assistance, that’s more of a systematic thing that we need to address.
And I think it’s really one of the best gifts that a parent can give to their children, financial independence and the skills to navigate the financial landscape. Unfortunately, they are often not taught that well, if at all, in schools. But I think the parents can really pick up the slack there. If your child comes to ask you for help with debt, maybe you can offer financial assistance, if you can. But it might even be more important to offer some counsel on “Alright, how did we get there? How are we going to get out of it and avoid going back there?”
Mike: Great tips! Ted Rossman, thanks so much for joining us today on the Hospital Finance Podcast.
Ted: Thanks for having me.