Parents who pay for their adult children’s expenses, like rent and student loans post graduation is no longer a new concept.
According to a survey conducted by Bankrate, half of Americans with children 18 or over have spent or are spending their retirement security to help support their adult children. The survey also found that parents are paying for a wide variety of bills, ranging from credit cards to rent and even student loans.
As college tuition costs continue to rise, parents are digging into their retirement funds to foot the bill for their children’s college tuition. A new survey done by Country Financial shows that 56% of parents are willing to take on $31,000 in debt, and 10% of parents have already gone into debt to pay for college for their children.
A Stark Reality
“It’s an emotionally charged subject.” Doyle Williams, executive VP at Country Financial concedes. “If it’s going to help your children of course you’re going to do anything. But parents today need to be objective and ask if that’s the right thing to do for them.”
Williams adds, “The reality is that retirement is a necessity, and paying for your child’s education is a luxury.”
There is a crisis of retirement in our country, roughly 40% of retirees are spending more than they anticipated, and the so-called sandwich generation of Gen Xers are facing the prospect of taking care of aging parents and adult children at the same time.
This ends up putting even more financial pressure on them which is impacting their ability to pay off their debt and set aside money for their retirement.
Bank of Mom and Dad
With a plentiful jobs market and rising wages, why are the younger generations still relying on the ‘Bank of Mom and Dad?’ Bankrate analyst Kelly Smith proposes that delayed entry into the workforce is partly to blame.
“Young adults are staying in school longer, because higher education is getting more popular,” Smith says. “Education costs are going up, they aren’t getting the immediate push to enter the workforce, and on top of that they need help paying the bills.”
Wages have bounced back since the recession, but not all of the younger generation can handle it on their own. Ironically, achieving advanced degrees to get higher paying jobs does mean that some adults have to rely on their parents longer.
And the proof is in the pudding, where we see the impact of the $1.5 trillion student debt crisis on not just the 45 million borrowers but their parents and grandparents as well.
The Elephant in the Room
While parents might think they are doing right by their children, but Smith says that supporting your children financially for too long does them no favors in the long run.
The boomerang generation – when children come back to live with their parents – used to be looked down upon. It would be best to avoid becoming a boomerang senior coming back to live with their children after their retirement savings have been depleted.
When their retirement accounts are at stake, it is imperative that parents have that uncomfortable conversation with their children earlier to come up with a game plan. It’s all about coming to a compromise, and moving towards a more comfortable future for all parties.
If you need any help setting up a plan for your financial future, the Financial Helpers are ready to assist you.
