Recent data from the non-profit group, American Consumer Credit Counseling suggests that almost one-third of middle aged Americans are assisting their adult children with living expenses. With many boomers already falling short of their retirement goals, the fear is that many parents are providing financial assistance to their grown children at a time when it might not be financial feasible - ultimately leading to the postponement of retirement.
"Emerging Adults," a term coined by psychologists to describe this group of 18-to-25 year olds, have been leaning on their parents for financial support to help with everything from housing assistance to student loan payments.
The challenges faced by millennials are well documented. Student loan debt has reached epidemic levels with over $1 trillion in outstanding loans. For many graduates, their student loan debt repayments can be as high as an average mortgage payment.
Additionally, the unemployment rate among 20-to-24 year olds is nearly 10 percent and has significantly contributed to the dependency too. Research suggests that the financial crisis has had a disproportionately large impact on young workers.
Pew research noted in their Young, Underemployed and Optimistic report that young adults who were fortunate enough to be employed full time during the financial crisis experienced a greater drop in average weekly earnings than any other age group during that time.
These challenges have led to other forms of financial support and an increased number of adult children choosing to live at home with their parents for an extending period of time.
Pew research also noted that the number of 25-to-34 year olds living with parents or grandparents has increased from 11 percent in 1980 to nearly 25 percent today. With the vast majority of households requiring two incomes to make ends meet, it is not surprising that it has been more challenging for millennials to leave the nest.
Regardless of the reason and the financial challenges millennials face, it is not advisable for a parent to compromise their retirement to support their adult children. Sure, there are circumstances that are unavoidable that require the assistance of a parent - divorce, health related issues or other serious unforeseen challenges.
However, many parents have chosen to support their children for what may be the wrong reasons while spending down precious retirement funds in the process. Remember, you cannot borrow your way through retirement. Children have many more years of earning potential ahead of them as compared to a parent who is within 10 years or less of retirement.
While it might be easier said than done, parents should have a clear understanding of their financial picture before committing funds toward the support of adult children.
What is the maximum amount that can be spent during retirement? How long will retirement funds last if the decision is made to earmark additional funds toward the support of children? Will the current investment allocations generate the desired amount of retirement income necessary to meet the financial needs? How many years might retirement be delayed as result?
It may also be important for the "sandwich generation" to have a contingency plan for their elderly parents too. (Nearly 20 percent of Baby Boomers are supporting their elderly parents financially.) Together, the financial strains of caring for an extended family can be extremely challenging, especially for those that are not on track for their own personal goals.
Improving financial literacy and empowering rock-solid financial decision making may be one of the best ways to assist millennials. Rather than focusing on financial support, parents should consider assisting children in the development of a financial game-plan including budgeting, goal setting and independence planning.
If financial support is necessary, establishing a time-frame for them to leave the nest should be considered. Gradually weaning them off of a parent's financial support system and onto their own two feet can help.
It may take time, but setting limitations for support and incentives for independence may help encourage millennials to move forward. Limiting student loan debt before it becomes a problem is also critical. If student loan debt has already become a problem, work toward developing a plan to address these payment challenges.
While it may not be easy and there is no denying that millennials face an uphill battle, parents should be careful to balance the support of their adult children against maintaining their ability to reach their own retirement goals. After all, the parent does not want to become a financial burden for their "emerging adult" in the future.
Kurt J. Rossi, MBA is a Certified Financial Planner, Practitioner & Wealth Adviser. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com