Millennials, Overwhelmed by Debt, Relying on Parents to Pay Basic Expenses

via autonews:

In a township outside Akron, Ohio, where Gregory DeLozier and his wife raised five children, there are few sidewalks and sparse public transportation. Getting their children behind the wheel of a car wasn’t optional.

At the Bureau of Motor Vehicles, DeLozier once joked that he should apply for a dealer’s license because of how many registrations he was renewing for his teenagers. “I got two insurance bills every month,” he recalled. “Three cars on one, four cars on the other.”

Even with four of the five children out of the house, DeLozier, 59, is still doing business as the “dealership of dad.” The software engineer and adjunct professorat Kent State University still shoulders four of his children’s vehicle expenses. In the last six months, he estimates, he has paid more than $15,000 in vehicle expenses for the children and their spouses.

“We’re like the circus net below everything that falls. That’s how parenthood is in America right now,” DeLozier said. “Your kids are on a high wire, they fall down, you pick them up and put them back up again. We paid for lots of repairs.”

With prices rising for new and used vehicles, and student debt posing a mounting burden, more young adults are asking their parents for assistance with auto purchases, insurance costs and repairs. As their children’s personal debt reaches unprecedented highs — TransUnion says millennials have a record $683 billion in student loans to worry about when figuring out how to afford a car payment — some parents are putting their own financial security on the line to keep their family on the road.

‘Times are different’

There’s little data available on how many parents shoulder vehicle expenses for their adult children. To determine who’s driving what, automakers and other agencies garner demographic data that measures the number of households with children in them, but not the ages of those children. Parents may continue to pay for a vehicle after its driver leaves home or purchase vehicles in their names for a son or daughter to drive.

“We live in a country where you have to have a car. Uber is not an affordable alternative. You can’t get an Uber every day to your job,” said Jonathan Banks, general manager of vehicle valuations at J.D. Power. “The majority of our population is still in a rural setting.”

Bill Lucy, 66, of Fort Wayne, Ind., gave a 2009 Toyota RAV4 to his youngest daughter in 2016 and still pays for its insurance. She didn’t attend college, though, so he didn’t need to help her with any student loan payments.

Mike Robertazzi, 63, of Toms River, N.J., purchased an Infiniti with his wife for their 25-year-old son. The son, who lives with them, previously owned a Chevrolet Corvette before being laid off.

“He didn’t have any real income, and since he’s going to school, we thought we’d do that for him,” Robertazzi said. “Times are different. When I was young, I bought my first house when I was single.”

Captive finance companies, which experts say are the type of lenders most likely to do deals that include a co-signing or co-borrowing parent because they have access to automaker incentives, won’t disclose how often these deals cross their desks.

Student debt

Dina Wilson, general manager and finance director of Timbrook Kia in Cumberland, Md., said the prevalence of parent-and-child customers at her store has increased.

“I’ve seen a lot more of those than what there ever used to be,” Wilson said. “As finance managers, we all need to be more aware of who our customer is in front of us.”

Vehicle purchases and student loans — whether for themselves or their children — are two of the biggest contributors to increasing debt for older Americans. People 60 and up had total debt of $615 billion in 2017, according to TransUnion, which is less than millennials owe on student loans alone.

Americans 60 and older held 21 percent of total automotive balances in 2017, vs. 12 percent in 2010, TransUnion said. Auto loans now account for $246 billion, or 40 percent, of their total debt.

For all Americans, fast-rising student loan debt is sapping income they could have used for other purposes, including a vehicle. More than a quarter of millennials with student loan debt have delayed buying a car because of it, according to a survey by Bankrate.com released in February, with the Midwest as the region most likely to cite loans holding back a vehicle purchase.

Mark Hamrick, Bankrate’s senior economic analyst, told Automotive News that many Americans are struggling with their finances even in a strong economy.

“It’s not unusual for many small towns in this country to have essentially not participated in the economic expansion in the past 10 years,” Hamrick said. “It doesn’t surprise me that the Midwest would be having some warning lights going off there.”

Student loan debt, which totaled $1.46 trillion in the fourth quarter for all ages, also is preventing younger Americans from purchasing homes, getting married and saving for retirement and emergencies, the Bankrate study found.

Expensive mistakes

Lacking a financial safety net for an unexpected expense also can compel a young car owner to turn to parents for help.

Though he considers his children financially responsible, DeLozier said they have made some costly mistakes with their vehicles.

A few years after he bought his daughter-in-law a used Toyota Camry, she called him from the road.

“We call that DadStar ’cause they would call me and say, ‘Dad, I’m on the freeway, and something’s making a funny noise,’ ” DeLozier said. “She’s a young professional, a biostatistician, but she’s no car mechanic.”

His daughter-in-law had never gotten an oil change, he said, and the Camry’s engine had thrown a rod.

He knew she and her husband, his 28-year-old son, didn’t have the money to replace it. A few years before, he had co-signed on a Kia Soul with his son after he had hit a deer, DeLozier said. Before the accident, his son was overpaying for his vehicle, a used Nissan Murano.

“He paid like 50 percent more than what the Murano was worth, and at a ridiculously high interest rate. It was like $28,000 at 18 or 19 percent interest,” he said. “The only way he could get reasonable rates was to have me co-sign. This is about access to credit for him.”

DeLozier had an idea for his daughter-in-law. He passed down his vehicle, a Honda Fit, to his 19-year-old daughter and replaced it through CarMax. Her car, another Camry, went to his daughter-in-law.

“She’s got a car now because I was able to afford a new car,” he said. “That trickle-down effect gave two other people better rides.”

But not every parent can afford to help their children in the same way.

The Consumer Financial Protection Bureau said in a December study that older Americans who provide financial support to children have lower financial well-being scores than those who don’t.

“There comes a point we have to say, ‘We can’t do this anymore.’ The parents, in trying to do the best for their kids, do the worst for themselves,” said Ray Walker, who works in sales and marketing and lives near Orlando. He pays for two daughters’ vehicle expenses while chipping away at a $50,000 student loan for one daughter, which represents about half the debt incurred while she earned a music degree at Belmont University in Nashville.

“We don’t have retirement money right now because we’ve paid for student loans,” Walker said. “People are sacrificing their own future.”

In New Jersey, Robertazzi and his wife are retired but feel trapped by their son’s financial situation. He couldn’t remember the last time they took a vacation.

“Here, what I thought was going to be a phenomenal retirement and a phenomenal future wound up just being the opposite,” he said. “Every little bit helps now, and every little bit that’s going towards everything else — it hurts.”