A recent report from NBC news highlighted something that I see every day in my practice. Many aging adults are putting off retirement or draining their retirement savings (or having them drained) to support adult children. As the go-to elder care attorney serving Chester County, I see the worst cases in my representation of Older Adult Protective Services when several children are living in a parent’s home and living off the meager income of that parent, there is a more insidious problem.
Parents are either continuing to support their boomerang children long after they have become adults and should be self-supporting, or they are curtailing their own retirement savings or retirement itself to pay for the upscale lifestyle of their adult children, often who have jobs.
Parents help them cover the cost of rent, pay off student loans, obtain health insurance, and more. But parents’ desire to provide their children with this type of financial assistance is creating a society of dependent children who cannot live within their means. This is not merely an issue of spoiled children, but a sign that as a society, we need to prioritize and make choices.
A Question of Support
Rather than supplementing (enabling?) their adult children’s lifestyles, parents should keep an eye on their own finances while teaching their children financial independence. Seventeen percent of 2,500 adults in a recent Bankrate survey said that they sacrificed their own retirement savings to help their adult children. Another 34 percent said they somewhat sacrificed their savings plans.
This is poor planning. The old adage about retirement planning is that your kids can take out loans for their education, but parents cannot take out loans for retirement (which is not entirely true, since I see older adults with large mortgages on their home and credit card debt, although they SHOULD not be living that way).
A recent survey showed that millennials think they should be supported for longer. And not only that, but they expect things like student loans to be covered up to the age of 23. Conversely, baby boomers think parents should wean children off their bank accounts sooner in just about every significant area of expense, including cell phone bills, car payments, and even travel costs. The gap narrows when it comes to more necessary, bigger ticket expenses, such as health insurance, which both millennials and baby boomers agree young adults should be wholly responsible for by age 23.
Evolving Financial and Social Norms
The 2008 financial crisis and the Great Recession knocked many for a loop. The first jobs of many young people did not use the education they earned, and in many cases, they were not earning what they anticipated or needed to become self-sufficient.
Do not misunderstand; the lifestyle choices made by their parents did nothing to train them to expect less and economize at the beginning of their work lives and therefore their expectations of how they should live, spend and save was (is) likely to be inconsistent with their earnings. Wage growth only recently started to come back ten years after the Great Recession and with unemployment at generational lows.
It’s not just financial norms that have been changed. Societal norms have been altered as well, with many young adults opting to pursue higher education, resulting in delayed entries into the workforce. Young people no longer feel pressured to immediately enter the workforce — either full-time or part-time — upon graduating from high school or college.
And the cost of higher education has so far outpaced income growth and inflation of other goods and services that what we are seeing now was somewhat foreseeable. Buying a first home or car is almost impossible with the debt load many young people start out within their adult life. These days, a typical monthly student loan repayment is around $400 per month, or $4,800 per year.
Parents’ natural tendencies are to help their kids out even if doing so imperils their own goals of saving for retirement. It also leads to older Americans remaining in the workforce longer. In fact, workers over 55 filled nearly half of all new jobs in 2018, even though they make up less than a quarter of the nation’s labor force. The re-entry of older adults (or staying in the workforce longer) into the workforce means that some jobs that may be filled by younger people are not available.
Establishing and Maintaining Independence
If adult children do not take care of their own finances, they don’t learn to manage bills, make sacrifices, or be autonomous. This deprives the young adults of developing their own coping skills, working, failing, fighting, deferred gratification.
For children to mature to be the leaders of the next generation (and maybe be a support system for their aging parents), they need to learn how to work through issues and come up with tools to achieve their goals. Conversely, for their parents to retain their independence and avoid becoming a burden, need to save for their own needs even if it means letting their children do without certain luxuries.