Author Topic: Parents' debt or my compounding interest -- Which comes first?  (Read 2642 times)

sortofwantanonymity

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Hi, I'm setting up my savings/retirement at age 29 and seem to be doing alright.

After setting money aside for some obvious things (like my Roth IRA limit for the year), I have some choices to make about where to put the rest of my savings. Obviously I've got lots of choices with varying risk/returns. It occurred to me that my parents are still very indebted on a business/property that I will eventually inherit (hopefully not for a very very very long time).

Their interest rates are agricultural rates in a European country and are actually pretty reasonable. But I figure paying these debts off quickly is a guaranteed risk free saving that beats almost anything banks offer right now. If my parents live long healthy lives, they should be able to pay off this debt on their own with the money generated by their crops and tourism. But I won't regret helping them out if they're still around to enjoy it with me in 20-30 years. And if something tragic happened, at least we won't have the debt to deal with.

I'm wondering if this is a subject that's been discussed before. After clearing personal debt, should an individual look at family debt (ie parents' debt) or should the individual immediately start building personal savings?

What would the mustache do?

blueeyetea

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Re: Parents' debt or my compounding interest -- Which comes first?
« Reply #1 on: May 26, 2014, 10:27:23 AM »
What do your parents think?  Have you considered their feelings in the matter? 

Unless they specifically request to make you a partner in the business, I say build your personal savings.   You can always turn it over to them if the need to be bailed out. 

I know you mean well and it's a credit to your parents that you're thinking of them, but it's a potential minefield. 


Cpa Cat

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Re: Parents' debt or my compounding interest -- Which comes first?
« Reply #2 on: May 26, 2014, 10:30:54 AM »
Build personal savings. Right now, it sounds like your parents have an income-producing property that is supporting itself. Unless they are struggling with it, there is no reason for you step in and save them. They don't seem to need rescuing!

Building your own investments is what will give you the freedom to take over this property, help them in the future, or do whatever else you want with your life.

sortofwantanonymity

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Re: Parents' debt or my compounding interest -- Which comes first?
« Reply #3 on: May 26, 2014, 10:38:15 AM »
My parents used to ask for money pretty frequently but I sort of cut them off while I got my debt in order. They (unsurprisingly) found ways to make it work. And the company I work with now buys a lot of their production so things are less tight for them. Now I have the freedom to open the faucet again, but they don't ask anymore. Maybe best to keep it that way and build my own security so that I can help if needed down the road.

Sonorous Epithet

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Re: Parents' debt or my compounding interest -- Which comes first?
« Reply #4 on: May 26, 2014, 10:38:42 AM »
I say build your own wealth.

If your parents' business is a sound one, they should be able to pay off the business's debt with the business's cash flows. If they can't do that, why throw good money after bad?

If you put money into your parent's business, that muddies the waters. Does that mean you'd have an ownership stake, since you are putting in capital? Is that just a gift to them? What if they don't leave it to you -- what if someone makes them an offer they can't refuse? What do you see out of that deal? It's a reasonable expectation to inherit, but there's no guarantee.

If you secure your own future, you will be in a position of strength to help later. Secure your own breathing mask before helping another family member with theirs.

Also, with a Roth IRA, you can take out the contributions at any time, penalty free. This makes for easy access to money you can reallocate in an emergency.

former player

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Re: Parents' debt or my compounding interest -- Which comes first?
« Reply #5 on: May 27, 2014, 11:13:46 AM »
As your parent's debt is on a business property, it could well be that they are taking advantage of the gearing that borrowing allows while getting a tax reduction for the interest payments.  If the debt is part of a carefully considered business strategy which maximises income opportunities while minimising taxes, an offer from you to help out would cause considerable consternation.  Leave well alone.