Grown children may be hazardous to your wealth

Boomers continue to subsidize adult offspring at the expense of their own retirement.

Baby boomers redefined parenthood over the past few decades, often serving as friend and confidant — as well as banker — to their now adult children. Many continue to subsidize their offspring’s living expenses well into early adulthood, even at the expense of their own retirement savings, according to a new study released this week.

I remember reading scary statistics about the cost of raising children when I was a young mother in the ’80s. The costs have continued to grow exponentially since then.

By 2015, American parents spent $233,610, on average, from birth to age 17, according to a 2017 report from the U.S. Department of Agriculture. That cost estimate includes everything from housing, food and transportation to health care, child care, clothing and education — but not college.

When it comes to finances, the lines between childhood and early adulthood have blurred. As a result of mounting debt, higher costs of living and other hurdles, 80% of early adults, those ages 18 to 34, say it is harder to become financially independent now than it was for previous generations, and 70% of their parents agree, according to a new study conducted by Merrill Lynch/Bank of America in partnership with AgeWave.

The study, Early Adulthood: The Pursuit of Financial Independence, takes an in-depth look at the experiences and challenges of contemporary adulthood and the power of intergenerational independence.

It contains some valuable insights for advisers about the financial guidance that young adults say they crave and how to counsel their parents as they try to juggle the competing goals of helping their grown kids while saving for their own retirement.

The study surveyed a nationally representative sample of more than 2,700 people, focusing on Americans ages 18 to 34. It found that young adults cite finances as their No. 1 source of stress and the top barrier to achieving their life goals, such as buying a home and starting a family.

Nearly three-quarters of early adults said they had received financial support from their parents in the last year, and 58% said they would not be able to afford their current lifestyle without ongoing parental support.

“As a huge percentage of early adults turn to the family bank, it has become the new normal,” said Ken Dychtwald, founder of AgeWave, a consulting firm focusing on how demographics affect business, society and the economy.

Parents spend more than $500 billion a year on their adult children, he said, about the same amount that people contribute to their retirement accounts.

“It’s generational generosity without a whole lot of boundaries,” Mr. Dychtwald observed. “Parents are really trying to help their kids get on firm financial footing.”

Guilty as charged! Although my two 30-something sons, who graduated from public universities free of debt, are self-supporting as they pursue creative careers, my husband and I tend to help them out with some big-ticket items. Need a new mattress? Merry Christmas! Can’t afford a needed car repair? Happy birthday! I’m just happy that they pay for their own insurance and cellphone bills. Our payback is watching them win awards at film festivals and DJ competitions. Fingers crossed that their fame may one day lead to fortune.

More than half of the young adults surveyed defined financial success as being debt-free, compared to only 19% who say financial success is being rich. That’s understandable as millennials face cumulative student loan debt of nearly $1.6 trillion — a 500% increase over the last 15 years — and average credit card debt of $3,700.

One in four young adults with a 401(k) has already made an early withdrawal, primarily to pay off credit card or student loan debt, the study found.

It may also explain why 72% of early adults say they would benefit from more financial guidance. This generation has the highest adoption rate of financial technologies, including payment, investment and budgeting tools. But they still crave a financial action plan.

Parents often try to instill sound guidelines, such as maintaining good credit, living within your means and saving for a rainy day. But they seldom teach their children specific techniques for budgeting, investing or managing debt. Nor are those techniques taught in school despite the fact that 86% of Americans agree that financial literacy should be part of the school curriculum.

Family support is not a one-way street. As lifespans increase, children may provide support — both financial aid and caregiving — to their parents. Nearly 90% of the young adults in the survey said they would be willing to support their parents in the future.

That, too, sounds familiar. My husband likes to remind, or threaten, our sons: They may be changing his diapers someday.