For "grandfamilies," raising grandkids can mean going broke

When Karen Best Wright took in her three grandchildren in 2002, she was doing what she thought was the best for her family -- helping raise a newborn and a 2- and 4-year-old while her daughter dealt with a crisis.

"We mortgaged our home," Wright told CBS MoneyWatch. "We spent $20,000 on legal fees." Financially, she notes, "we were in a mess."

Wright's situation of raising grandchildren when parents are unable to care for their own kids is increasingly common, with the U.S. Census Bureau reporting this month that 6 percent of children live in households run by grandparents, double the percentage in 1970. Today, about 2.7 million grandparents are serving as primary caregivers for their grandchildren, the Census noted.

While social demographers have noted the trend, what has received less attention is the financial burden placed on older Americans who step in to raise their grandchildren. Many are preparing for retirement when they suddenly find themselves taking on the job of raising youngsters again. That can create financial stress not only from having to buy necessities such as diapers, but also from the legal costs that often come with taking custody of their grandchildren, experts note.

In Wright's case, the financial demands of raising her three grandchildren for seven years also coincided with the Great Recession, and she lost her Virginia farmhouse to the bank. While she says she doesn't regret the decision, she notes that financial burdens can be heavy on older Americans who are called to help out in a family crisis.

"Right off the bat, some people mortgage their homes to take care of their grandchildren, and some of them use up all of their savings, sometimes to get the kids out of the foster homes and into their homes," said Wright, who is now 61 and writes a blog for grandparent caregivers. (She has also written a book about her experiences called "I Love You from the Edges: Lessons from Raising Grandchildren.")

Grandparent caregivers "are used to taking vacations, and now everything is going to taking care of the grandkids," she said.

Most grandparents aren't signed up for the foster care system, which requires licensing and can come with its own burdens, such as requiring a home to get retrofitted to meet state regulations, explains Donna Butts, executive director of the advocacy group Generations United. Without qualifying as a foster parent, grandparents aren't eligible for foster care payments, which vary by state but which can range from $400 to more than $900 per month per child.

Grandparents can qualify for TANF, or Temporary Assistance for Needy Families, but this payment is often about $150 per month, or far less than foster families receive, Butts notes.

"The policies that govern child welfare and foster care haven't kept up with the trends," she said. "There have been discussions about the need to create standards for grandparents that are different from the standards for foster parents. A grandparent is family, not a stranger" who is taking in children.

Generations United, which advocates for policy changes related to intergenerational families, even has a term for this new type of family structure, given that it's becoming increasingly common: "grandfamilies."

The trend has been growing because of several societal changes. The growing problem of drug addiction is one cause, while another is America's skyrocketing incarceration rate, which is putting more parents behind bars. In 2010, the country had almost 2.3 million prisoners, or almost double the 1.3 million prisoners in 1992. Grandparents are also getting called in to raise their grandkids when parents are called for military deployment or are dealing with their own financial or health issues.

"Grandfamily" households tend to have less income than homes where parents are the breadwinners, according to Pew Research. The median household income for grandparent-led homes is $36,000, compared with $48,000 for homes where parents are raising their kids.

It's difficult to know whether "grandfamily" homes are less well-off because they are foregoing income to take care of their grandkids, or if they started off at a lower socioeconomic level, said Gretchen Livingston, a senior researcher at Pew.

The trend of grandparents raising their grandkids picked up during the recession, but has leveled off during the past few years, Livingston added.

"In the midst of the recession we were seeing family household forms changing, and grandparents seemed like the social safety net that could be put into place in an economic hard time," she said.

But while that's helped out many families, many of those grandparents are ending up financially strapped and unprepared for retirement, Generations United's Butts noted.

About one-third of grandparents who are raising their grandchildren are age 50 to 59,Butts noted. "Those are prime-time years to be saving for your retirement, but rather than that they find themselves paying for school clothes. They are paying for school supplies, or Pampers."

While there are 2.7 million children being raised by their grandparents, only 400,000 children are in the foster care system, she added. If even half of those grandparent-raised children were to enter the foster care system, that would cost the country an additional $6.5 billion, Butts noted.

For many grandparents, the financial strain is worth the chance to take care of their grandkids, Wright said. But many also face emotional stress, she said, both from dealing with the children's needs as well as from other family members who may criticize them for taking on the role.

"It's really important that people recognize these sacrifices these older Americans are making," Wright said. "It can be really hard, not just physically, but financially, for seniors who are desperately trying to keep their families out of the foster care system."