I have a friend who has student loans. Lots of them. At the same time his parents are struggling to find decent investments. Within a multigenerational family, you invariably see one generation trying to grow and preserve wealth, while another generation is looking to borrow money for major expenditures. In the current interest rate environment, it is quite likely that both parties will be frustrated. That’s because with current rates they can expect to:
- Pay 7.5% on student loans
- Pay 3.5% on mortgages
- Earn 1.5% on 5 year CDs
To preserve wealth within a family unit, it makes a lot of sense for family members to lend to each other. While my friend is paying 7.5% on his loans, his parents are watching the purchasing power of their money erode. The interest they are earning does not even keep up with inflation.