Financial support for adult children limits retirement readiness for parents. The latest study from Merrill Lynch reveals that parents are sacrificing their own financial security in retirement to support children whose financial independence has been delayed.
Most parents provide financial support to adult children ages 18 to 34, according to recent research from Merrill Lynch. Incredibly, each year parents spend twice as much supporting their adult children than they do contributing to their own retirement ($500 billion spent on adult children, $250 billion in contributions to retirement accounts).
“In this new era of delayed financial independence of young people, financial planning is becoming an ongoing family project with longer and different economic interdependencies than we’ve seen before,” says Ken Dychtwald, Ph.D., CEO and founder of Age Wave.
There are 173 million parents in the U.S. and 76 million have children under the age of 18. The average cost of raising a child today to age 18 is estimated to be more than $230,000. Most new parents are surprised by how much money they spend paying for childcare and other expenses like diapers and dental work. More than 60 percent of parents encounter financial difficulties associated with parenting.
Financial support doesn’t end when a child turns 18. A third of early adults ages 18 to 34 still live with their parents. More than 70 percent of parents say they have put their children’s interests ahead of their own need to save for retirement. Over 80 percent are willing to make a major financial sacrifice for adult children.
“While it’s tempting to help your kids get a good start, early adulthood expenses can be big-ticket items, like cars, rent and grad school tuition. If you can afford to help out, that’s great, but be clear on your intent, set clear boundaries and don’t imperil your own finances,” says Stacy Allred, managing director and head of the Merrill Lynch Wealth Management Center for Family Wealth. “Remember that one of the greatest gifts you can give your kids is financial independence and security.”
When it comes to educating children about personal finances parents are better at teaching them how to pay off debt than they are at teaching them to invest early and benefit from compounding interest. More than 70 percent of parents wish they had help teaching their children about investing. A whopping 90 percent of parents would like personal finances to be taught to children in school.
It’s difficult to educate children on personal finances when most parents experience significant financial stress themselves. Employer-sponsored financial wellness programs can make a real difference by helping parents better manage their own money so they can teach their children to do the same.