Boomers continue to subsidize adult offspring at the expense of
their own retirement
Apr
18, 2019 @ 4:17 pm
Baby boomers redefined parenthood over the
past few decades, often serving as friend and confident — as well as banker —
to their now adult children. Many continue to subsidize their offspring's
living expenses well into early adulthood, even at the expense of their own
retirement savings, according to a new study released this week.
I remember reading scary statistics about the
cost of raising children when I was a young mother in the '80s. The costs have
continued to grow exponentially since then.
By 2015, American parents spent $233,610, on
average, from birth to age 17, according to a 2017 report from the U.S.
Department of Agriculture. That cost estimate includes everything from housing,
food and transportation to health care, child care, clothing and education —
but not college.
When it comes to finances, the lines between
childhood and early adulthood have blurred. As a result of mounting debt,
higher costs of living and other hurdles, 80% of early adults, those ages 18 to
34, say it is harder to become financially independent now than it was for
previous generations, and 70% of their parents agree, according to a new study conducted by Merrill Lynch/Bank
of America in partnership with AgeWave.
The study, Early Adulthood: The Pursuit of
Financial Independence, takes an in-depth look at the
experiences and challenges of contemporary adulthood and the power of
intergenerational independence.
It contains some valuable insights for
advisers about the financial guidance that young adults say they crave and how
to counsel their parents as they try to juggle the competing goals of helping
their grown kids while saving for their own retirement.
The study surveyed a nationally representative
sample of more than 2,700 people, focusing on Americans ages 18 to 34. It found
that young adults cite finances as their No. 1 source of stress and the top
barrier to achieving their life goals, such as buying a home and starting a
family.
Nearly three-quarters of early adults said
they had received financial support from their parents in the last year, and
58% said they would not be able to afford their current lifestyle without
ongoing parental support.
"As a huge percentage of early adults
turn to the family bank, it has become the new normal," said Ken
Dychtwald, founder of AgeWave, a consulting firm focusing on how demographics
affect business, society and the economy.
Parents spend more than $500 billion a year on
their adult children, he said, about the same amount that people contribute to
their retirement accounts.
"It's generational generosity without a
whole lot of boundaries," Mr. Dychtwald observed. "Parents are really
trying to help their kids get on firm financial footing."
Guilty as charged! Although my two
30-something sons, who graduated from public universities free of debt, are
self-supporting as they pursue creative careers, my husband and I tend to help
them out with some big-ticket items. Need a new mattress? Merry Christmas!
Can't afford a needed car repair? Happy birthday! I'm just happy that they pay
for their own insurance and cellphone bills. Our payback is watching them win awards
at film festivals and DJ competitions. Fingers crossed that their fame may one
day lead to fortune.
More than half of the young adults surveyed
defined financial success as being debt-free, compared to only 19% who say
financial success is being rich. That's understandable as millennials face
cumulative student loan debt of nearly $1.6 trillion — a 500% increase over the
last 15 years — and average credit card debt of $3,700.
One in four young adults with a 401(k) has
already made an early withdrawal, primarily to pay off credit card or student
loan debt, the study found.
It may also explain why 72% of early adults
say they would benefit from more financial guidance. This generation has the
highest adoption rate of financial technologies, including payment, investment
and budgeting tools. But they still crave a financial action plan.
Parents often try to instill sound guidelines,
such as maintaining good credit, living within your means and saving for a
rainy day. But they seldom teach their children specific techniques for
budgeting, investing or managing debt. Nor are those techniques taught in
school despite the fact that 86% of Americans agree that financial literacy should
be part of the school curriculum.
Family support is not a one-way street. As
lifespans increase, children may provide support — both financial aid and
caregiving — to their parents. Nearly 90% of the young adults in the survey
said they would be willing to support their parents in the future.
That, too, sounds familiar. My husband likes
to remind, or threaten, our sons: They may be changing his diapers someday.
https://www.investmentnews.com/article/20190418/BLOG05/190419930/grown-children-may-be-hazardous-to-your-wealth
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