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Are Your Kids Delaying Your Retirement and Are You Delaying Their Self-Sufficiency?

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It seems that the wealthier you are, the greater your chances of financially helping your adult children. Pew Research Center data compiled in late 2014 revealed that 38% of American parents had given financial assistance to their grown children in the past 12 months, including 73% of higher-income parents.1  
 
The latest Bank of America/USA Today Better Money Habits Millennial Report shows that 22% of 30- to 34-year-olds get financial help from their moms and dads. Twenty percent of married or cohabiting millennials receive such help as well.2 
 
Do these households feel burdened? According to the Pew survey, the answer is no. 89% of parents who had helped their grown children financially said it was emotionally rewarding to do so. Just 30% said it was stressful.1
 
Other surveys paint a different picture. 
 
Earlier this year, the financial research firm Hearts & Wallets presented a poll of 5,500 U.S. households headed by baby boomers. The major finding: boomers who were not supporting their adult children were nearly 2½ times more likely to be fully retired than their peers (52% versus 21%).3 
 
In TD Ameritrade’s 2015 Financial Disruptions Survey, 66% of Americans said their long-term saving and retirement plans had been disrupted by external circumstances -- what I affectionately call 'life' -- and 24% cited “supporting others” as the reason. In addition, the Hearts & Wallets researchers said that boomers who lent financial assistance to their grown children were 25% more likely to report “heightened financial anxiety” than other boomers; 52% were ill at ease about assuming investment risk.3,4
 
Economic factors pressure young adults to turn to the bank of Mom & Dad. 
 
Thirty or forty years ago, it was more plausible for a young couple to buy a home, raise a couple of kids and save 5-10% percent of their incomes. For millennials, many of whom are shouldered with large amounts of student loan debt, that is more difficult today. In fact, the savings rate for Americans younger than 35 now stands at -1.8%.5 
 
Housing costs are high and so are tuition costs. The jobs they accept frequently pay too little and lack the kind of employee benefits preceding generations could count on. The Bank of America/USA Today survey found that 20% of millennials carrying education debt had put off starting a family because of it. The average monthly student loan payment for a millennial was $201.2 
 
Since 2007, the inflation-adjusted median wage for Americans aged 25-34 has declined in nearly every major industry (health care being the exception). According to Federal Reserve Bank of San Francisco data: while overall U.S. wages rose 15% between 2007-14, wages for entry-level business and finance jobs only rose 2.6% in that period.5,6 
 
It may be wonderful to help, but you must be measured and clear in providing help. 
 
Studies show that parents should not offer open-ended financial help. In the extreme, Ted Klontz, PhD calls this money disorder of well-intentioned parents "Financial Enabling" and describes this and other money disorders in detail in his book "Mind Over Money." Klontz says there is often an underlying and often unconscious motivator driving the parents when financially enabling. Perhaps to assuage gilt for not being a good parent or not being around enough during childhood could be motivators. 
 
Setting expectations is only reasonable: establishing the amount of the support and deadline when the support ends is another step toward instilling financial responsibility in your son or daughter. A contract, a rental agreement, a formal loan with promissory note and repayment terms are all good measures to help convey clear expectations. This way you can help your child financially through their troubles without inhibiting them to financially spread their wings and become self-sufficient.  
 
With no ground rules and the bank of Mom and Dad providing financial assistance without end, a “boomerang” son or daughter may become financially dependent for years or decades. In addition, what happens when a grandchild comes on the scene before the child becomes financially self-sufficient? Now the dependents have multiplied and with obviously no fault to the grandchild. Talk about a conundrum! 
 
Setting clear expectations and sticking to them is not mean but necessary. You only get one shot at retirement. Your children have a long runway to make things right.

Best Regards,

Kevin Kroskey, CFP, MBA
 
This article adapted by Kevin Kroskey with permission from MarketingLibrary.net, Inc.

Citations.

1 - pewsocialtrends.org/2015/05/21/5-helping-adult-children/ [5/21/15]
2 - newsroom.bankofamerica.com/press-releases/consumer-banking/parents-great-recession-influence-millennial-money-views-and-habits/ [4/21/15]
3 - marketwatch.com/story/are-your-kids-ruining-your-retirement-2015-05-05 [5/5/15]
4 - amtd.com/newsroom/press-releases/press-release-details/2015/Financial-Disruptions-Cost-Americans-25-Trillion-in-Lost-Retirement-Savings/default.aspx [2/17/15]
5 - theatlantic.com/business/archive/2014/12/millennials-arent-saving-money-because-theyre-not-making-money/383338/ [12/3/14]
6 - theatlantic.com/business/archive/2014/07/millennial-entry-level-wages-terrible-horrible-just-really-bad/374884/ [7/23/14]
 

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