Parental debt can impact children’s emotional well-being

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According to a US study, certain types of debt, such as home mortgages and student loans, are linked to better child well-being, while unsecured debt such as credit card balances and bills Overdue medical conditions are linked to increased behavioral problems.

“Our results highlight that debt can be both positive and negative, depending on what it is used for and the price or cost at which it is borrowed, in terms of interest rates, fees, etc.”, said lead author Lawrence M. Berger of the University of Wisconsin-Madison Poverty Research Institute.

“It makes sense that taking on debt for specific investments can be beneficial – for example, taking out student loans to go to college or a mortgage to buy a house can lead to better social and economic outcomes, while taking out a unsecured debt, such as credit card debt or payday loans, which are not tied to such investments, may not be,” Berger said via email.

The researchers looked at data from a national sample of participants recruited as children beginning in 1979, and the children of these subjects, who began enrollment in 1986. The entire cohort was followed through 2008 for the new study.

The researchers focused on 9,011 children and their mothers, who were interviewed every two years about their child’s problem behaviors. The study team also divided total parental debt into four categories: home, education, car, and unsecured — including credit cards, money owed to individuals or banks, and medical debt.

Families in debt tended to be better educated, with higher academic abilities and self-esteem. Parents were also more often married and owned their own homes than those without debt, likely because more advantaged people have better access to credit and are more likely to take on debt, the authors write in Pediatrics.

As the overall debt increased, so did the child’s behavior problems, but this varied by type of debt. Higher levels of mortgage debt and education were linked to fewer behavior problems, while higher unsecured debt was linked to more behavior problems.

“What is not clear from our work is whether there are particular thresholds, either in absolute terms or relative to income or earnings, at which we should be particularly concerned about the influence of debt on child development,” Berger said.

“I think parents can be careful not to discuss financial difficulties in front of their children” and not to argue frequently in front of children, said Patricia Drentea of ​​the University of Alabama at Birmingham, who was not doing part of the new study.

“These results don’t tell us that if you take out a mortgage your children will be happier,” Dr John Gathergood, an economist at the University of Nottingham in the UK, said by email.

But something about the type of families who take on mortgage debt versus the type of families who take on expensive credit cards or loans matters for a child’s well-being, Gathergood told Reuters Health.

Collection efforts are more stringent for unsecured debt and can be more stressful, said Heikki Hiilamo, a social policy researcher at the University of Helsinki in Finland, who was also not part of the new study.

But this is one of the first studies on the topic of parental debt and child well-being, so it should be studied further, he told Reuters Health.

“It can be common to think that those struggling with debt (especially unsecured) have made poor financial decisions or overspent,” Berger said. “However, many who had credit card debt, medical debt, and payday loans incurred such debt because they had no other financial alternatives.”

Wages have stagnated or fallen for several decades, especially at the bottom of the labor market, while credit has become more readily available largely due to financial deregulation policies, he said.

“So many people and families are going into debt just to stay afloat,” he said. “Although our analyzes do not address them, financial counseling and education can be beneficial in the short term by helping individuals and families develop strategies to reduce the cost of debt and pay it off as effectively as possible once contracted.”

SOURCE: bit.ly/1KtfIIX Pediatrics, online January 21, 2016.

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