Did you know that American families spend twice as much money on adult children than on retirement savings, according to a Merrill Lynch survey. It is time to explore the empty nest and tough love.
According to a study done by Merrill Lynch and Age Wave, the most expensive stage of parenting is when the kids move out, the empty nest stage.
When the kids move out, it is supposed to be the time when you can save money, spend more time on yourself, and save more for retirement. Unfortunately, more often than not, parents continue to be the “family bank” for their adult children, tossing the supposed plans out the window.
In June 2018, 2,500 parents with adult children (18+) were asked questions about their current parenting stage. Most parents with adult children reported that they financially supported their children, especially throughout college. Most also admit that they placed their children’s interests ahead of their own retirement plans.
Some parents postpone retirement because they are willing to dip into retirement assets or assume new debt. This assumed obligation brings them unhealthy stress and creates situations that may impact their quality of life in retirement. If the parent had set appropriate boundaries and said no to continuing financial help that they could not afford, their health and retirement would not have been spoiled.
According to a Pew Research Center survey, six out of ten parents with at least one adult child indicated they gave financial assistance. This supports that even if the kids have moved out, they are still a part of the parents’ financial picture.
Put It On the Tab
So, how much have the adult children racked up? Loosely, a cool $500 billion. Yes, that is billion with a B. Estimation put about $54 Billion towards food and groceries and $18 billion towards cell phone plans. A contributing factor comes from the student loan crisis. It should be noted that this tab does not include costs like weddings or first-home down payments.
Today’s parents are more likely to contribute to their adult children’s expenses like housing, automobile, and even vacation costs. Since the future is uncertain, it is not unreasonable for parents to have this type of behavioral bias. After all the parents are around to enjoy it.
Many experts believe it is critical to encourage children along and ensure they are prepared to leap into financial independence. The sooner they complete the pivotal shift, the sooner parents will be able to free up much-needed funds. This is for the benefit and self-care of the parent’s goals, such as boosting a retirement account, chipping away at debt, or having money for a car and home repairs.
According to experts, tough love is required for parents to develop financial confidence in their adult children. They need to sit down and have a hard conversation. With them, take a close look at the children’s expenses and set goals with a hard target date. Allow them to set self-imposed goals with accountability checks.