Rosalind Evans
In the current economic climate, many young adults are financially dependent on their parents well into their 20s. The pressures of inflation and increasing costs of essentials like food and housing have contributed to this scenario. Moreover, millennials and Gen Zers are often saddled with more significant student loan debts and lower wages than their parents faced at similar ages.
A recent survey by Experian revealed that over half of Gen Z and millennials continue to rely financially on their parents, a fact that two-thirds of the respondents felt uneasy about. Interestingly, while older generations believe their offspring should attain complete financial independence by 21, the younger generation views this as a suitable age to start covering some of their expenses, such as credit card bills and travel expenses. This information was sourced from a separate Bankrate.com report.
“Parents and adult children often have differing perspectives on financial independence,” commented Ted Rossman, Bankrate’s senior industry analyst.
The same Bankrate report highlighted that 68% of parents with children over 18 are making monetary sacrifices to aid their adult children.
Parents’ Financial Wellbeing at Risk
Parents reportedly spend an average of over $1,400 per month, providing their adult children with necessities ranging from groceries and cellphone plans to health and auto insurance, as reported by Savings.com. This financial support can significantly impact parents, mainly when their financial security is shaky.
“Covering these costs can jeopardize your retirement and other financial objectives. Unlike many things, no loan is available for retirement,” Rossman cautioned.
Approximately half of the parents with adult children admitted that their support has negatively affected their emergency savings or debt repayment capabilities. According to Bankrate’s findings, a slightly lower percentage reported a detrimental impact on their retirement savings.
Promoting Financial Independence in Children Yet, Derek Miser, a financial advisor and president of Miser Wealth Partners in Knoxville, Tennessee, asserts that parents can take proactive measures to safeguard their financial future while helping their adult children become financially independent.
Miser’s essential advice includes:
Prioritize yourself
Initially, address your debts and commitments before extending any financial help, Miser recommended. Additionally, securing your future by contributing to retirement accounts is crucial, putting you in a stronger position to assist your adult children when needed.
Lend, don’t gift
“Supporting your children financially is acceptable, but giving money freely without expecting repayment is not advisable,” said Miser. He recommends lending the money and establishing a written repayment plan.
Assist in credit building
Co-signing on credit cards or loans for your children can help them develop a good credit score early, reducing their future dependence on you. However, Miser cautioned that this could make you liable for the debt if your child fails to repay it.
Involve children in financial discussions
Miser suggested including your children during your financial, tax, or accounting advisor visits. Encouraging them to engage in these conversations can enhance their understanding of financial matters and prepare them for future financial responsibilities.
As the landscape of economic challenges shifts with each generation, it becomes increasingly vital for parents to foster financial independence in their adult children. Guiding them towards fiscal responsibility equips them for future economic hurdles and safeguards the parents’ financial well-being. Parents must remember that the best support they can offer their children is teaching them to successfully navigate the world of personal finance. By taking these strategic steps, parents can ensure a financially secure future for themselves and their children.
