Helping Adult Children Financially – Why Do It?
Most parents of adult children assumed (or hoped) their offspring would be independent at some point after age 18. Yet, many parents today continue to support their children financially.
Parents from the Baby Boom generation (1946-1963) most often fall into this category. Boomers enjoyed a level of wealth unmatched by earlier generations. They experienced a growing economy during their early earning years, allowing a high percentage to achieve financial stability. However, experts forecast that the next few generations won’t be as fortunate.
For example, when the Boomers were under 40, they represented 13.1% of total U.S. wealth. For the next generations, Gen X (1964-1978) and Millennials (1979-1995), the figure is only 6%.
What caused this? Unlike Boomers who were buoyed by favorable financial winds, their children faced challenging times:
- Black Monday US stock market crash (1987)
- Savings and Loan crisis (1986-1995)
- Y2K financial disruptions (1999-2000)
- September 11 attacks (2001)
- Financial crisis of 2007–2008, which set off the Great Recession (2007-2009)
- Financial turbulence caused by the COVID-19 pandemic (2020–present)
Boomers were far enough along in their wealth accumulation journey to weather these storms, but their children’s generations were in their vulnerable early-earning years and suffered as a result.
The resulting wealth gap looms large for these generations. As a report by the Washington think tank, New America states:
“Since these younger families are entering or are in their prime earning years, this raises the question of whether they will be able to get back on track or risk becoming a “lost generation” in terms of wealth accumulation.”
Wealth Transfer Tidal Wave?
Although things sound dire for younger generations, it might be temporary. According to the Federal Reserve, the Baby Boomer generation currently has assets of approximately $78 trillion, which their families will likely inherit by 2043.
Nevertheless, there are a few reasons why post-Boomer generations shouldn’t start counting on such a windfall quite yet.
First, the top 1% of asset owners accounts for about $36 trillion of this wealth. So, the rich will remain rich. Conversely, a 2019 Insured Retirement Institute study found that around 45% of Boomers had $0 in retirement savings.
Second, the remaining $42 trillion sounds like a lot, but the Boomers will depend on this money for their wants and needs. For example, a 2021 survey found that 75% are more interested in spending their retirement savings on enjoyable pursuits than leaving money to their beneficiaries.
Boomers will also tap this wealth reservoir to fund necessities such as healthcare and long-term care. For example, the Fidelity 2023 Retiree Health Care Cost Estimate projects that an average couple will spend $315,000 on healthcare costs during retirement, a 96% increase since 2002. Long-term care costs pose a significant challenge as well.
Average annual costs in 2023 ranged from $64,200 for assisted living to $69,212 for an in-home health aide and $116,796 for a private room at a nursing home. Genworth estimated that if increases continue annually at a 3% rate, these costs will more than double by 2053.
Help Today Rather Than Tomorrow?
Given the generational wealth gap, it’s no wonder many Boomer parents help their adult children financially now instead of waiting for an inheritance.
A study by Savings.com highlighted this trend:
- 45% of parents provide some level of financial support to at least one of their adult children, excluding 6% of parents who support an adult child with a disability.
- The average monthly support amount was $1,400, which primarily paid for housing, groceries and cell phone costs.
- 21% of parents providing support helped with student loan payments, averaging $245 monthly.
As for healthcare insurance, Fortune magazine reports that 17% of parents continue to cover their Millennial adult children.
The Pew Research Center found that a growing number of young adults (ages 18-29) live with their parents. Census figures from 1960 showed that 29% of young adults lived with one or more parents. By 2010, the number was 44%, and by 2020, the pandemic spiked the proportion up to 52%, the highest rate since the closing years of the Great Depression (48%). The main drivers of this trend were high housing costs and student loan payments.
The Risks of Helping
Given the hurdles their adult children face, parents may consider helping them financially an easy decision. However, keep these caveats in mind.
Assess the Risk to Your Own Finances
First, as noted above, nearly half of Boomers have no retirement savings. As much as you’d like to help, you must focus on your needs first. If you jeopardize your own situation, you may end up becoming dependent on the very adult children you are trying to help.
Consider Possible Dependency
Second, will helping your adult children make them more dependent on you? Rather than giving money, it might make sense to help them build up their independence skills like budgeting.
In these trying times, many parents consider helping their children financially. While there are good reasons to do so, it’s crucial to consider all the options before opening the wallet. I’ll cover more details about this important subject in future Sixty and Me blogs.
Also read, Financial Umbilical Cord or Lifeline? 7 Discernment Tips for Assisting Adult Children.
Let’s Have a Conversation:
How do you help your adult children? In what manner do you help them? If your children are independent financially, how did they get that way? If your adult children need your financial help, would you be able to assist them?
Tags Adult Children
I recently read a book about retirement, even though I am still working, and the author’s opinion is that ‘it’s better to give with a warm hand than a cold hand’. I agree and enjoy helping my adult children financially. They are both successful professionals and don’t need the help but are appreciative. I would have appreciated financial help from my parents when I was younger vs when I am in my 70’s or 80’s.
I agree with you. I have one daughter who has always worked. She rarely asks for help but I know when she is in need. the way we work it is she may do some chores for me that i would have to pay a handy man, I in turn, help her with a bill! it works out great and we get to spend time together
Since the cost of housing and rent have become outrageously expensive, I purchased a small condo for my daughter and she is paying me rent based on her earnings. Jobs for our youth today have become inconsistant and salaries have generally not kept up with inflation. Stable middle class jobs with decent benefits have decreased considerably. Many investors and CEO’s have become greedy and our children are suffering for it. Some might disagree but I have lived long enough to know our capitalist system is lacking in compassion. I am not against capitalisn but extreme capitalism is creating inefficient inequities.
I’m finding the inverse of the situation is also true. Those parents who are not able to support themselves are looking to their children. The comment about focusing on your needs first is tough when you know your parents have limited resources. My parents helped all of us kids but the wealth our parents saved was barely enough to care for my father in the end and left my mother with next to nothing. In some ways she is fortunate to have senior services available for subsidized housing, food programs, and medical coverage. My siblings and I know there will be no inheritance and that we will be out of pocket at some point but that is what it is.
A serious relationship with a man I expected to spend the rest of my life with ended due to our disagreement about this topic
He’d had some bad financial setbacks that were bad luck, but he had continued to himself deeper into debt by giving buckets of money for any reason or no reason to his early and mid twenties daughters. Any agreements they had to, say, handle some of their own car expenses, they would ignore and he let it slide. He is a very successful man with a history of high earnings but he was approaching retirement age with no savings and extremely high debt. He could not understand that he was also providing his kids with no motivation to learn to fend for themselves. I thought I was pretty understanding and kind about it but the conflict ended our relationship. I had enough of my own money but I feared ending up having to support him as well
I think it’s good that you got out of this relationship. Sure, your heart may hurt for a while, but there were too many red flags flying. As time passes, you may look back & wonder, but will then realize that you’ve done the right thing. Bless. 🇦🇺
I am a GenXer, and received some help from my dad, a Baby Boomer, after I graduated from college. Now that I’m older and able to support myself, I don’t receive as much support from him, though I do still receive cash gifts every so often.