Generational Debt: Financial
Most of us are familiar with Generational Wealth - property, money, connections, and resources in general passed from one generation to the next. We are less familiar with Generational Debt - obligations and liabilities passed from one generation to the next.
This is a very large topic, so I will be spending several articles addressing it. At the start of each article, I want to remind everyone that some of this material may touch on cultural and traditional beliefs about family and interactions between generations. It is also important to remember that we are speaking specifically about parent-child style individual relationships (so any parental figure such as parents, grandparents, mentors, aunts, uncles, etc.) and not larger, societal dynamics such as Social Security or government safety net programs in which an actual social contract has often been signed.
These articles should in no way be seen as attempting to attack, condemn, or undermine any cultural beliefs. The aim is solely to explore, and hopefully gain understanding of, how responsibilities passing through generations can impact both sides with the hope of fostering greater chances for success.
What Financial Generational Debt Is
Just as Generational Wealth is the passing of benefits across generations, Generational Debt is the passing of burdens down the generations. These burdens often tend to grow from one generation to the next, and take two distinct forms: Financial Debt and Emotional Debt.
Financial Debt is more obvious - money owed somewhere. This can be a home mortgage, credit card debt, car loans, medical costs, expectations for the newer generation to assume all bills for the previous, and any number of other “debts” passed down. This can be from an official inheritance, or just daily living.
I feel it important to note financial interplay between generations is completely normal, and not necessarily Generational Debt. Splitting the mortgage payment after moving in with mom and dad because it is vastly cheaper for you, you’re likely to inherit the house in a few years as mom and dad downsize, and mom and dad are a big help with the kids is probably not Generational Debt passing down. This is most likely generations working together - each bringing their unique strengths - to help both prosper.
Where Generational Debt comes in would be if mom or dad expected you to take over the mortgage - regardless of your circumstances - because “it’s your turn.” This expectation of the next generation assuming the burdens of the previous is passing of Generational Debt. Some common examples might be:
“I kept a roof over your head for 18 years. Now it’s your turn to keep a roof over mine.”
“I ran up these credit cards so I could feed and clothe you. You pay them off.”
“The family business has kept this family going. I did my time running it for decades, now it’s your job - and don’t you let us down because the whole family is depending on it.”
“I bought you all those things, now you need to pay me back.”
“I worked my tushy off for X years to support you, and now you’re going to support me.”
“Oh, woe is me. I sacrificed every dime I ever had for my poor children, working my fingers to the bone, and now I can’t afford even basic groceries and not one of them will lift one single finger to help me. Not one. I’m sitting here starving to death waiting for even one of my children to offer me a single glass of wine - Chardonnay, and not that cheap crap.”
“You’re old enough to get a job, so you go pay the bills.”
In each of these examples, including the passive aggressive one, there’s an expectation that the new generation will provide money and/or services back to the previous as if a legally binding loan contract were signed. This especially harms the younger generation because now they are starting not just at zero, but actively in debt.
Imagine opening your first every bank account, and as soon as you sign your name the account is $10,000 overdrawn through no fault of your own.
And what’s worse, financial debt tends to increase dramatically over time through interest, inflation, medical issues, and numerous other factors. The new generation is stuck paying off debt from the past and probably isn’t even starting to build up their own financial resources. Most people can’t afford to pay multiple rents or mortgages (parent’s and their own) freshly out of high school or college.
This puts the new generation in a heavy bind, and probably builds a lot of resentment. They either need to quickly and aggressively exceed the parent’s earnings or spend potentially years of their earning potential trying to pay off a likely growing debt. Even if they can manage this within 3-5 years, that’s years of their own earning potential lost with the need to build their own future still looming.
Note this also assumes that there even is a set, specific total that can be identified and paid off. A car loan has a set amount, but what about the other “debts” of ongoing rent, food, clothing, medical care, and the like? Those have potentially no ceiling and can last many decades.
All of these factors make it more and more likely the new generation will pass Generational Debt on to their own children, probably even more than they inherited. Thus the cycle not just perpetuates, but actively grows worse for each generation.
The Relationship Toll of Financial Generational Debt
Financial Generational Debt often stems from a sense of children (or child surrogates such as nieces, nephews, foster kids, neighborhood kids) being a financial investment expected to return dividends in the future. We spend time and money today with the expectation that, when they become capable of generating income themselves, the children will give us back as much or more concrete, physical resources (money and the things money can buy).
This mindset treats children more as tools, almost a form of indentured servants, than actual loved ones and is a recipe for breeding resentment on both sides. On the parent’s side, this creates an expectation and demand which the child may not share. It also puts the parent in a very vulnerable position if the child either can’t or won’t accept the “contract.”
If I spend 18 years living on the financial edge with the expectation of a cash windfall saving the day, what am I supposed to do when I realize that windfall is never coming? I was counting on a sudden influx of $50,000 per year to pay all these debts, and now I’ll be lucky if I even see $100.
Setting aside for a moment the notion of seeing children as annual income when they reach adulthood, there’s a very real financial crisis looming. That financial need does not simply disappear, even though my available resources might. And now it has had at least 18 years to grow larger.
The child may simply not be able to provide that kind of income, but could also actively refuse to even if they have the means. One reason those resources may disappear is the relationship damage done by this expectation. The child may refuse this “contract,” even feeling a strong sense of resentment towards the parent, choosing not just to deny finances but even a meaningful personal relationship. Both sides are now at risk of suffering a deep, personal loss far beyond any cash.
Going a bit further on the child’s side, this expectation - especially if it can’t be feasibly met - can also breed a deep sense of failure, insecurity, and low self-worth.
What if I’m not able to keep the family business afloat, even for reasons far outside of my control - the family business is an old VHS tape rental?
What if I can’t pay for college, dad’s rent, and dad’s cancer treatment all at the age of 19, even though he sacrificed so much to raise me?
Mom was able to balance three kids, two jobs, and keep a roof over our heads for combined 25 years, but I can’t even pay for my own home, plus mom’s, plus all the things my siblings want, plus my own new baby on an entry level salary? And I’ve even got a spouse who sort of helps with another entry level job! I’m such a loser.
These weights can build up quickly, and can lead to severe issues with mental health and even interactions with others. In that last example above, we’re now at risk of spreading Generational Debt to someone who wasn’t even involved, the spouse who probably had nothing to do with the original debt. The Generational Debt may even contribute heavily to the end of that marriage, with potential resentment/blaming of mom for that. “Marry me, marry my family” has some real validity to it, but “Marry me, pay for my family” carries a very different weight that not everyone can or will shoulder.
What To Do about Financial Generational Debt
Generational Debt, regardless of financial or emotional, generally tends to spread. This article is already quite long, so we’ll save in-depth “treatment” for a dedicated article as there are some similarities in how we address both. Still, we can begin sowing the seeds of change.
Both sides need to realize that there is no binding, legal contract - that I am aware of - saying a child is automatically responsible for assuming the financial burdens of a parent at any point in time. While we may want to help each other, we both have the power to unilaterally end this “contract” at any point in time. This can be painful, but is virtually always possible (as long as no one has signed an actual, legal contract).
Financial obligations are very real, this is not in dispute. Other resources (legal, governmental, NGO, volunteer groups, or even social service agencies) may need to be engaged to help protect both the parent and the child. Government safety net programs such as Medicare or Medicaid may be options. While perhaps not preferred, and may come with some costs of their own, these may be necessary to ensure both parent and child have what they need even if it isn’t exactly what they want.
Clear, firm boundaries likely need to be set, ideally together but can be done individually by either side. If passing of Financial Generational Debt is a real threat, money and resources may need to be something that simply is not discussed, or something we set specific rules around how it is discussed and when discussion stops. If help can be provided, we may also need firm rules about how much, when, where it goes, and for how long it continues. In this case, a clear and definitive end point needs to be set.
Open, honest, and respectful communication can help both sides mitigate the damage - even past damage - done to the relationship by passing of Financial Generational Debt. This is a hard one, and requires all sides to approach communication in good faith with an understanding that we want to heal and protect the relationship itself. A neutral party acting as mediator, such as a therapist, may be helpful but is not necessarily required.
Last, each party can engage in their own personal growth work. Learning how to manage your own financial obligations, feelings of insecurity or self-worth, and setting of helpful boundaries will likely be useful even if we never discuss together. If one party refuses to ever work together, it may be necessary for the other(s) to focus instead on their own self-management. Again, therapy can be an option, but is not the only one.
There is no one, single, guaranteed method of stopping and healing from Financial Generational Debt, but each of these steps can help move in the right direction. Ideally, all parties involved move away from a focus solely on the “problem” - the money - and shift to a focus on how we can help protect and build upon the actual relationship between all parties, while still taking steps to resolve the underlying problem.
Next up will be tackling Emotional Generational Debt, a potentially even more insidious and harmful form of Generational Debt.
