Parents Spend $500 Billion on Adult Kids, But Can’t Afford to Retire
By Dan Kadlec
October 3, 2018
If for no other reason, here’s why parents and teachers need to make certain kids get a financial education: In the U.S., moms and dads with adult children spend $500 billion a year supporting them, new research show.
That’s love. But it is also folly. In the throes of a severe retirement savings crisis, parents are spending twice as much on their kids’ rent, groceries, and cell phone bills as they are putting away for their own financial security.
That is the key finding in a report from Merrill Lynch Bank of America and consultants Age Wave. Groceries top the list with 60% of parents kicking in for their adult children. That is followed by cell phones (54%), car expenses (47%), education (44%), vacations (44%), and rent or mortgage (36%). In all, 79% of parents pay something toward their adult kids’ lifestyle.
Families generally understand the strain this aid puts on parents. But parents, who have already spent an average $230,000 to raise each of their children to age 18, overwhelmingly say they are happy to make the sacrifice. Many see parenting as forever.
Nothing wrong with that. But financial parenting, which is well documented, needs to end at some point. The Merrill Lynch report suggests parents are taking steps to help their children become financially independent. Most parents say they try to teach their kids about finances and be good role models. Interestingly, the kids don’t see it that way.
Some 59% of parents say they have taught their kids about investing and compound growth; only 31% of kids agree. The gap is narrower when it comes to paying off debt and maintaining good credit. But in each case fewer kids agree their parents are teaching them about such things.
These findings echo a survey from T. Rowe Price that found there are far more parents that say they talk to their kids about money than there are kids that agree with that statement. So, the disconnect is consistent. Adults are not getting through.
Parents admit it is difficult to teach their children about money. They give themselves better grades for teaching good values than for teaching financial responsibility. Three-quarters say they wish…
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…they had some help teaching their kids about investing, and 90% agree that personal finances should be taught in school, the Merrill report found.
In most homes, financial education follows a basic path. It starts with allowance at around age 6 in median amounts of $40 a month before age 14 and $65 a month after that to age 17. In more than half of households, the allowance must be earned in some fashion, ranging from household chores to school grades to following family rules.
At around age 9, parents open a bank account for their kids. At 15, kids get a part-time job. At 18, they get a credit card. At 20, kids open an investing account, most often a 401(k) at work.
These are good markers. But the actions alone don’t teach anything. They require discussion, which a lot of kids say they do not get. Parents are doing the costly part—supporting their adult children at the risk of forestalling their own retirement. It would behoove them to be more proactive on the discussion front, which is where financial educators can play a big role too.