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?