Benefits advisers key to cutting $500 billion umbilical cord
American parents are collectively spending $500 billion a year to support their grown children — double the amount they’re contributing to their personal retirement accounts, according to a new study.
Financial planners say this practice is jeopardizing parents, who are giving up retirement savings to support their adult children. Benefit advisers can help by directing employees to financial services.
The rise of dependent adult children is a fairly new problem. The joint study by Bank of America Merrill Lynch and market research firm Age Wave shows 31% of adults aged 18 to 34 still live at home, a 50% increase from the 1960s. The same study says 79% of parents are still financially supporting children in that age bracket.
“In generations past, once you hit your 18th or 21st birthday, it was generally believed you were living on your own,” says Ken Dychtwald, CEO and founder of Age Wave, which focuses on issues that affect an aging population. “Maybe it’s because tuition and rent are so high and jobs are hard to get, but it’s presenting substantial financial consequences for parents, who currently are not saving for retirement.”
Current economic circumstances are to blame for the surge of dependent adult children, according to Dychtwald. For example, College Board reports the current cost of in-state tuition for a public college averages $10,000 a year; back in the 1960s, it was around $300 a year, he says . Also factor in the higher costs of living and the hoops graduates need to jump through to obtain jobs with livable salaries — like unpaid internships — Dychtwald says it’s no wonder young adults have a hard time leaving the nest.
“Financial advisers are in a great position to take inventory of your situation with you,” says Lorna Sabbia, head of retirement and personal wealth solutions at BAML. “They’re also a great tool for educating the next generation on financial wellness. It would be really helpful to have a family meeting with a financial adviser.”
Sabbia warns that a financial adviser will recommend parents immediately stop paying for at least some of their adult child’s expenses. But they’ll also work with the adult child to craft their own plan for financial independence.
“By talking about these topics we’re encouraging children to become financially independent,” says Sabbia. “We can open up conversations within the family, or work with the adult child to address questions they may be embarrassed to ask in front of their parents.”
While over 70% of parents said they’d financially support their adult children, half said they wish they had established boundaries on how much they would contribute. Dychtwald notes that some adult children expect financial support from their parents.
“Children don’t realize the significant pressure and contribution their parents are making by continuing to support them,” says Lisa Margeson, head of retirement client experience and communications at BAML. “That’s another area where advisers can help maneuver the conversation.”
Margeson says Merrill Lynch provides its employees with access to a network of experts who specialize in caregiver issues, an umbrella that includes dependent adult children. She notes that it’s a good idea for companies to designate an individual or committee that can refer employees to helpful resources.