Parenting Grown Children: What Dr. Spock Forgot to Tell Us

When should our adult children be able to stand on their own financial feet?

By the time they're 22, our children should be financially independent. It's a milestone most of us think they should reach as young adults. At least, that's what a survey by the Pew Research Center finds.

The reality (now it's U.S. Census analysis doing the finding) is that only a quarter of today's 22-year-olds have met that milestone. That's a much smaller percentage than 40 years ago when many of us were young and in our 20s. Then, one-third of 22-year-olds had crossed over the point that is supposed to distinguish childhood and the comforts of the parental home from stand-on-your-own adulthood.

This slippage in independence raises the question: Are we over-coddling our kids, offering too much helping hand and not enough tough love? Pew finds that the public perception is that, yes, we're we're doing too much for them. Here's what those in the Pew survey had to say about today's parents of young adults:

When those who say parents are doing too much for their young adult children were asked in an open-ended format in what ways they are doing too much, 43% pointed to financial assistance. Some 37% said parents are trying to solve their children’s problems for them or are afraid of letting their children fail. About one-in-five (23%) said parents are doing too much for their adult children by letting them live with them. And 4% pointed to providing babysitting and child care for grandchildren as examples of how parents are doing too much for their adult children.

A lot of us are guilty as charged. Pew found that roughly six-in-ten parents with children 18 to 29 gave their children a lot or some help in the past year. While some of that assistance was a one-time shot, a good deal of it was for recurring expenses, like household, medical or housing assists or educational expenses.

In fact, educational expenses loom large in the breakdown of the reaons we give, though it reflects parental income. According to Pew:

High-income parents are more likely than those in lower income groups to say the financial help they gave was related to education. Two-thirds of parents in households earning $100,000 or more a year say the support they gave their adult children was tied to educational expenses, compared with 53% of parents with incomes between $75,000 and $99,999, and fewer than half of those earning less than $75,000.

To give those educational dollars some perspective, in the past forty years college tuition has grown four times as fast as inflation and eights times more rapidly than household income. The amount owed on student debt--whether it's the students or taken on by their parents--is estimated to be $1.5 trillion. That's more than what we Americans owe on our credit cards and auto loans combined. If our kids are one of those 45 million owing that debt, they're starting out their adult lives with a lot of I.O.U. on their shoulders. No wonder today's parents feel pressured to help out if they can.

(You can see more details on the Pew survey here , including the definitions the foundation used for financial independence and gender differences in the findings.)

Observations: Michelle Singletary on when to cut an adult child's financial cord

I am not the only one writing about the helping hand versus tough love. Or how to find, as Michelle Singletary puts it in her Washington Post column, The Color of Money,  "the balance between protecting our children and letting them learn the hard way."

She does not--as I do not--have an all-purpose, one-answer-fits-all solution. It depends.  She writes about hearing from readers who are helping pay down their children's student loan debt and opening savings accounts for grandchildren ("We do not see this as an umbilical cord, we see it as an investment in their future.")  and another reader who is supporting a child while he gets his PhD ("He'll get the money sooner or later, and he might as well get it when it will help the most.")

To be sure, it is not all "thanks and I'll pay you back on your investment in me." There are times when we might not hand over assets. Some kids exude an unpleasant air of entitlement, which could be a signal to tighten the fist. And, of course, not all of us can afford to be as generous to our kids as we would like to be. 

Affordability aside, here's where Singletary comes down on the financial aid question:

Wherever you draw the line, take a step back and make sure you’re pushing your children toward being as self-supporting as possible.

Bank of Mom & Dad: We make irrational decisions about helping out our kids. But there's a reason for that.

Financial advisers tell us to squirrel away money for our retirement, and yet we spend it on our adult children--paying their cell phone bills, letting them live rent-free in our houses. Friends (especially those without children) are shocked (shocked!) when we give a grown child a lavish gift or pay one of their outstanding bills.

Yes, it may not make financial sense; it may run counter to a life-long parenting goal of our children becoming independent adults.  Yet a recent outgrowth of economic thought understands why we do it: It has a whopping pay off. In short, it makes us feel good.

The slightly longer answer goes like this: When it comes to money, the getting and saving matter--how much longer we need to work; how much money we need to keep in an emergency account. But so do emotions. In the long run, they may overwhelm our rational judgment about long-term goals, but they also bring us happiness in the here and now. For some of us, there's a deep pleasure in paying off a chunk of our kids' college debt or car payments or offering a wad of cash for the down payment on a first house. (For that matter, putting aside money in an emergency account doesn't make all that much sense, but it does bring us comfort to know it's there.)

As parents we are more than a spreadsheet and by-the-book counselors.

In his financial blog Michael Kitces points to research and makes a point about money and happiness:

Yet contrary to the conventional wisdom that “money can’t buy happiness”, a recent new book entitled “Happy Money” by researchers Elizabeth Dunn and Michael Norton suggests that there may be far more opportunity than we realize to derive greater happiness by changing the ways we spend our money. How we spend – on ourselves, and others – really does impact the enjoyment and emotional well-being we derive.

In fact, the research of “Happy Money” suggests that sometimes, the best things we can do to improve our happiness may lie in not trying to maximize our wealth, but instead focusing on experiential purchases (rather than “stuff” that appreciates in value), spending money to buy time, and even spending money to support family and relatives instead of ourselves (which may not be cost-effective, but can be remarkably happiness-effective!).

 For more on the the latter point Kitces raises, see my post : "Can we afford to share our wealth with our grown kids in the here and now? There's a way to measure that."

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Money Matters: The Bank of Mom and Pop is always open

When our kids were young adults, the Bank of Mom and Pop was often there to help out, to be a cushion for an unexpected expense, to defray education costs.  Even when the grown kids started families, We the Bank was a generous lender--for child care costs or a downpayment on a house.

We were not alone. According to a 2,000-person survey by TD Ameritrade, on average grown kids ages 19 to 37 received more than $11,000 in financial support and unpaid labor (babysitting, household help) from their boomer parents, ages 50 to 70.

A managing director of TDAmeritrade tells us that the underlying driver of our children's financial needs are student debt, stagnant wages and rising childcare costs.

Then he adds a kicker: "Grandparents are the secret to making it work — eager to help with financial support, child care and running the household."

He made that comment because half of the grandparents surveyed said they've made sacrifices to help their children and grandchildren. All of which suggests that we may think adulthood has brought our children financial independence, but we need to rethink that. For many of us, the Bank of Mom and Pop is never closed.

If you're interested in exactly where the money (and free labor) goes, rent/mortgage tops the list in terms of dollars received, followed by car payments, groceries, utilities and cellphone bills. Almost 20 percent of the kids surveyed said their parents helped  pay their phone bills to the tune of somewhere between $262 (the average of what kids said they received) and $547 (the average of what parents said they sent.)

Also on the grandparent help-list: toys and clothing for grandkids as well as grandkid schooling.

Is there a price to pay for being a 24/7 banker? You bet. A GOBankingRates' savings survey looked at the price parents and grandparents are paying for their helping hand. Boomers ages 55 to 64 owe a median of $3,000 in credit card debt and two-thirds of them have less than $1,000 in a savings account.

 

 

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Parenting Millennials: Why they aren't moving out and about the country the way we did

When Paterfamilias and I were young and starting our life together, we picked up stakes and left New York City for Washington, D.C. Almost all of our friends have similar stories to tell. One left Nebraska and lived in Alabama before making a home in the east. Another hightailed it from New Jersey to Seattle, got married and moved east with a spouse who took a job here.

That was then. Evidently, it's not happening now. According to Pew research, Americans overall are moving about the country at the lowest rate on record and a primary reason is Millennials: They are staying put at a significantly higher rate than earlier generations of young adults. In 2016, only 20 percent of Millennials who were 25- to 35-year-olds reported having lived at a different address one year earlier; in the mid-1960s that percent was 30.

Pew researchers find this counter-mobility trend counter-intuitive since the three usual impediments to moving about the country are missing from the Millennial repertoire:

--Having a spouse. Marriage is a drag on mobility since a move generally means two people have to line up new employment. According to Census data, in 2016, only 42 percent of Millennial 25- to 35-year-olds were married and living with their spouse; in 1963 it was 82 percent.

--Owning a home. It is usually less disruptive and less costly to move from a rental apartment than it is to sell a house, so one would expect renters to be more mobile than homeowners. In 2016, only 37 percent of Millennials in the 25- to 35-year-old age span lived in owner-occupied housing (not owned by their parents). In 1981, 56 percent of early Baby Boomer 25- to 35-year-olds lived in such housing.

--Being parents. They don't have kids yet. It's much more difficult to pick up stakes when children are part of the household. In 2016, a majority (56 percent) of Millennial 25- to 35-year-olds didn't have a child of their own living with them. Fewer than half of Gen Xers and Boomers were childless at a similar stage of life.

So, if Millennials are less tied down by spouses, houses and kids, why are they staying closer to home than we did? The recession's job market and student debt may have something to do with it. But I'll let Pew spell it out:

Labor market opportunities may be a factor. Millennials were hit hard by the Great Recession in terms of job-holding and wages. For many young adults who moved in the past year, job opportunities were a prime motivation for moving, and the modest jobs recovery may not be providing the impetus Millennials need.

When they do move, Millennials’ motivations for moving are significantly different from those of earlier generations of young movers. One incentive for moving is to buy a home, but Census Bureau migration data suggest Millennial movers are doing so at significantly lower rates than earlier generations. In 2016, homeownership among younger households was at its lowest level in at least 40 years. On the one hand, the different family demographics of Millennials – such as not having children – may undercut their desire to own a home. But financial considerations may play a role as well. Compared with Gen X young adults around 2000, lending standards are much tighter, making it more difficult for Millennial 25- to 35-year-olds to get a mortgage. Related to this, student debt may be deterring young adults from home ownership.

 If you want to visualize the mobility stats, here are the Pew charts plus a link to the Pew report.

 

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Supporting Grown Children: There is such a thing as a "brat allowance." Benefactors beware.

"Parenting has changed to obsessive paternalism over time. Well-meaning parents are taking over the financial lives of young adults....The adult child needs to be weaned away. Lines need to be drawn."

This sad state of affairs and the heartfelt advice that accompanies it comes not from the mouth of a financial advisor or self-help columnist here in the U.S.  I came across this paean to the fostering of the financial independence of adult children in The Economic Times of India.

Uma Shashikant was exhorting her readers to save for retirement and reminding them that the greatest hindrance to building a nest egg is a soft-spot for indulging adult children financially, particularly children who have jobs and are earning money. She goes on to describe three forms this indulgence takes: a subsistence allowance, a cushioning allowance and a brat allowance.

India is not so far removed from us that the three categories don't apply here. In the spirit of sharing ideas from other cultures, here are Uma's descriptions of the ways in which Indian parents rationalize their financial support of adult children and the ramifications of doing so.   

Parenting has changed to obsessive paternalism over time. Wellmeaning parents are taking over the financial lives of young adults.

Read more at:
http://economictimes.indiatimes.com/articleshow/52265402.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Parenting has changed to obsessive paternalism over time. Wellmeaning parents are taking over the financial lives of young adults.

Read more at:
http://economictimes.indiatimes.com/articleshow/52265402.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

The subsistence allowance: We would call this the return to the empty nest. Parents provide a place to live, food to eat and a means of getting around. While Shashikant admits that this form of assistance can help a young, working adult build assets, she also notes that "these sheltered young adults will not know how to manage within their own incomes. ...Persistence of this subsidy can lead to a situation where young adults see even core expenses as burdens."

The cushioning allowance: Parents pay insurance premiums, fund their children's share of holiday and celebration expenses and chip in for or take on large expenses. "When the financial status of well-placed parents is better than that of the young adults, these expenses are either willing subsidies or a result of emotional blackmail," Shashikant writes. "Parents effectively bear the  decisions made by young adults, dangerously separating action and consequence. Not an advisable practice."

The brat allowance. If subsistence and cushioning are bad ideas, the brat is worse. This is when parents pay off their child's debts (loans, credit card bills) and, in Shashikant's words, "also fund the adult children's demands for upgrading to better cars, gadgets and homes." If their adult child's income is not up to their lifestyle, the brat allowance provides cash to meet life style expenses. We don't need Shashikant to point out the flaws here, though she sums them up this way: "The brat allowance clearly encourages the young adult to live beyond their means, assuming that the parents' assets are theirs to access and use as they wish."

Reading this piece reminds me how universal are the issues of parents, money and adult children. For Shashikant (and for most of us) there's an unpleasantness about a defined allowance--certainly of a brat allowance and its sense of entitlement. Where to draw the line? Here's Shashikant's advice: "When help comes without asking, the sense of entitlement increases. Parents should wait for the children to seek, ask, request financial accommodation, before jumping in to bail them out."

My take-away: An occasional helping hand, yes. Open-ended allowance, never.

 

 

 

 

 

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Money Matters: When do our adult kids grow up financially?

Some of us close the Bank of Mom and Dad when our kids graduate from college or when they finish their grad school degrees. Some of us do it even earlier--when the kids have a high school diploma in hand and leave home for college or a job. To each their own.

Regardless of whether the bank is open or not, at what age should we expect our kids to be financial grown ups? A new research survey in the United Kingdom asked parents that question. The answer was pretty surprising.

 According to the Sainsbury's Bank survey, UK parents pegged financial independence--that is, the age at which the parents can stop having to help their kids out financially--at 29. That's well past the college grad age. The mums seemed to be a softer touch than the dads. Women expected to support their children until they are 30; men saw the cutoff as 27.

Many of the parents reported taking out loans to help out their kids, half the loans being for their child's education or to pay for the wedding. Other reasons for loans: medical expenses, cars and help with household expenses. The average value across all loans stood at the U.S. equivalence of $14,000.

Survey analysts pointed out a reality behind the expenses that would seem to hold true here: While it is becoming more common for adult children to pay for their own wedding, the cost has gotten so high that help is needed. Ditto with college and grad school costs.

Parents in the U.K. aren't just doling out cash. A quarter of adult children aged 20 to 34 are bunking in with their parents, up from 21 percent twenty years ago. Given that shift, it's not surprising the rate of home ownership by 25-29 year-olds dipped from 55 percent in 1996 to 30 percent in 2016; for 30-to-34 years-olds, the change is even more startling, given that this is an age at which married cojuples expand their family size. Home ownership, however, is down from 68 percent twenty years ago to 46 percent today.

Here's what the author of the bank's Family Finance Report had to say about the changing times in the U.K.:"Today's parents are the first to face the perfect storm of expensive university fees, sky-high property prices and near unaffordable rents in cities, none of which they had to deal with themselves at their children's age. Add in the increased difficulties that even graduates have to get a job and it's clear the situation is far tougher for today's twenty-somethings than it was when they were born."

These are, of course, first world country concerns--we should be happy to have them. But they also suggest that, though we as parents are stepping in to help, there's a lot of financial unease and discontent among our 20-somethings and their older siblings.

Refilled Nest: The grown kids are moving back home. It may not be the economy

Remember that slogan from the 1990s?

Well here in the 2016s, maybe it isn't--at least not when it comes to our grown kids moving back home after college.

A May 24 story on the Pew Foundation's website trumpeted this headline: For the First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds.

The broad survey finding: In 2014, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household. Census data backs up Pew findings. In 1960, less than one in six 25-year-olds still lived with mom and dad; in 2014, nearly one in three did.

What holds true for the U.S. is also a global phenomenon. Across much of the developed world, young adults are living at their parents’ homes for longer periods--either they never left or they're back after being on their own in college or the working world.

 

What's going on here? Researchers say it isn't the difficulty in landing a career job or the burden of college debt (though those have some influence). Rather, it's a demographic and cultural shift. Kids are continuing to marry later, with this change. Or as Pew so delicately put it, there has been a "dramatic drop in the share of young Americans who are choosing to settle down romantically before age 35."

 

The Pew headline needs close reading. It's not that a greater percentage of grown kids are living with mom and dad than ever before. That peak--35 percent--was hit in 1940. (Today it's 32 percent.)  What's at an all-time high is the relative share of grown kids adopting non-traditional ways of living in early adulthood.

 

Those living arrangement differ significantly by gender. Since 2009, the dominant living arrangement for young men has been living at home with mom and/or dad. Young women are edging close to that point but are still more likely to be living with a spouse or romantic partner (35%) than they are to be living with their parent(s) (29%).

 

Meanwhile, 14% of young adults are heading up a household in which they live alone, are a single parent or live with one or more roommates, and 22% live in the home of another family member (such as a grandparent, in-law or sibling), a non-relative, or in group quarters (college dormitories fall into this category).

 

Here are some more statistical breakdowns from Pew:

• More young women (16%) than young men (13%) are heading up a household without a spouse or partner. This is mainly because women are more likely than men to be single parents living with their children.

• Young men (25%) are more likely than young women (19%) to be living in the home of another family member, a non-relative or in some type of group quarters. (Employed young men are much less likely to live at home than young men without a job, and employment among young men has fallen significantly in recent decades as  has young men's earnings.)

• In addition to the rising median age of first marriages (a decades-long trend), as many as one-in-four of today’s young adults may be eschewing marriage altogether. The overall share of young adults either married or living with an unmarried partner has substantially fallen since 1990.

• Young adults in states in the South Atlantic, West South Central and Pacific areas of the U.S. have recently experienced the highest rates on record of living with parent(s).

If you like charts and stats, here are some from Pew that spell out their findings on our millennials and their living arrangements.

 

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Money Matters: Is it ever way-too-soon to set up a 529 for Grandkids?

 

Some of us are early birds: We set up college savings accounts the minute a Grand is born. It's a gift of hope and trust in the future.

Then there are those who are really early risers: We start paying into a 529 college-saving plan as soon as we hear a baby is on the way. It's a gift to celebrate the coming event and a bridge to the future.

That's not all. There's an even more premature 529: the pre-grandparent account.  A recent story in the Wall Street Journal took a look at starting a college-savings plan before the grandbaby has been conceived and conceivably before the recently wed couple are sure they want to have children. "If that seems like rushing" writes the WSJ, "think again."

Here are the numbers behind the idea: The cost of the average four-year college is nearing $165,000 and rising 3.7% a year. A 529 plan started with the maximum $14,000 initial gift, five years before a child is born, funded with $500 every month and earning interest at 3% compounded monthly, would yield $226,784 by the child’s 18th birthday. The same plan started at birth would yield $167,336.

When an infant arrives and receives his or her own Social Security number, the parents—or the grandparents who still own the account—can designate the newborn as the beneficiary. Ownership of the plan can be transferred to the grown children--the putative parents of the college student--should that be desirable or necessary. Or, if a future grandparent thinks he or she may not live to see a grandchild’s birth, a will can provide for an executor or trustee to carry out 529 plans using assets in a revocable trust.

And if there is no Grand baby? That's part of the chance you take.

This post linked to the GRAND Social

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What do our Millennials worry about when they worry about money?

                                                    (Photo credit: Wikipedia)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

They worry about their financial future. Their average age is 30, but saving for retirement also looms large among their fiscal worries. And who do our Millennial-aged grown children trust to provide them with information about these financial issues? Us. Thus spake a recent Fidelity Investments’ Millennial Money Study.

While they say--72% of them anyway--that they have no problem broaching financial issues with us, most of them --67%--have not had detailed conversations with us about such important issues as estate planning, health and eldercare, and covering living expenses in retirement. As to what we might be leaving them when we pass on, 41% say they have not had any conversations at all with us about our will and estate planning.

The survey is a follow-up to Fidelity's 2014 Intra-Family Generational Finance study, which was an online poll of U.S. parents and their adult children that looked at the levels of agreement between families on key financial topics. To be part of the survey, parents had to be at least 55 years of age, have an adult child older than 30 and have investable assets of at least $100,000. Children qualified if they were at least 30 years of age, had at least $10,000 in savings. The newer survey asks many of the same financial questions to and about Millennials. The Millennials in this study average 30 years of age. Just under half of them are married, have children as well as a 401 (k) style savings plan. As to their parents, one-third of us are retired.

Some of the financial findings from the survey:

They may trust us but 27% tell us nothing when it comes to money.

The top three financial issues Millennials say they are tryingn to deal with include: accumulate more savings for retirement (52%), pay off credit card debt (41%), and pay off student loans (28%).

Two-thirds think it is more acceptable now for children to move back home after college, and 32% say they are more financially dependent on their parents than their parents were at the same age.

Nearly one-half of Millennials have received some kind of financial assistance from their parents at some point since leaving home. Topping the assistance list are cell phone bills, car insurance and groceries.

You can see the survey in all its detail here: The Fidelity Investments Millennial Money Study: Facts ...

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