How far will parents go when it comes to financial support of adult children?
Researchers hired by MetLife’s Mature Market Institute surveyed more than 2,100 Americans between the ages of 21 and 65. They took a look at how three age groups viewed financial obligations: baby boomers (born between 1946 and 1964), members of Generation X (born between 1965 and 1976) and members of Generation Y (born between 1977 and 1990). They found a strong desire among all ages to help family members in financial need. But there are limits.
Across the board, 76 percent across all groups felt either a strong or moderate obligation to help children with expenses such as college costs and said they would contribute an average of at least $10,000. A smaller percentage felt obligated to help children buy a house or provide an inheritance. But when it comes to helping them climb out of credit card debt, the message seems to be, “You’re on your own.”
Motivation grows for paying for college
The number of Americans receiving financial help from their parents to pay for college is increasing with each generation. Just more than one-third of baby boomers (35 percent) but nearly half of the Gen Y-ers (46 percent) said they got help from their parents in paying for college.
So how much should you chip in as a parent? Take a look at your own financial situation first, says Brad Klontz, a financial psychologist and co-author of “Mind Over Money: Overcoming The Money Disorders that Threaten Our Financial Health.”
If you’re saving enough for retirement and taking care of yourself, go ahead and help out with college costs, Klontz says. But don’t get yourself into financial trouble.
“We love our children, but at the same time it’s quite a burden on them to worry about taking care of you as you age because you didn’t take care of yourself,” Klontz says.
“When parents put aside their own needs, they’re more likely to pay higher tuition at schools rather than going more affordable routes.”
Reasons for debt matter
When it comes to helping kids out in a financial setback, much depends on how they got there. Forty-four percent of parents across all ages say they feel compelled to help an adult child with a financial setback not of their own making, such as job loss, illness or divorce. But only 11 percent felt strongly that they should help out when their sons or daughters sink into debt from overspending. Baby boomers are the least likely to feel the need to help an adult child get out of debt.
“There was some tough love from respondents,” says John Migliaccio, the Mature Market Institute’s director of research. “If a child got into trouble through no fault of their own, everybody was willing to step in, but, if they were less than responsible, [parents] had a much lower sense of responsibility.”
Tough love is a good thing in the case of credit card debt, says Klontz, who adds that families are struggling to deal with this relatively new reality. Traditionally, families have always helped each other. But now, credit cards let people get into much more trouble.
“Before, it was you ran out of money and you need a place to stay,” Klontz says. “Now it’s I have $20,000 in credit card debt. People have the ability to get in a deeper hole.”
One of the most common referrals Klontz gets from financial planners is a client who should be financially set, but is having trouble because he or she keeps bailing out adult children.
“I call that financial enabling, which is financial help that hurts,” Klontz says. “When someone behaves irresponsibly, it’s a little like giving alcohol to an alcoholic so their hands won’t shake. It will cure the symptom in the short run, but it actually contributes to the problem.”
A better tactic is teaching children responsible spending from a very early age – as early as age 3 or 4.
“Passing down your money is a good thing. Working really hard to pass down your values is a better thing,” Klontz says.
Retirement trumps inheritance
When asked to prioritize funding their retirement, those closest to retirement age say it takes precedence over leaving money to their children. Seven in 10 baby boomers say funding their retirement beats leaving an inheritance. Just 64 percent of Gen X-ers and 57 percent of Gen Y-ers agree.
Baby boomers are more focused on their retirement because they feel they’ve done their job, Migliaccio says — they’ve raised their children, they’ve educated their children and they feel it’s OK to turn more attention to themselves. They also want to avoid being a burden to their children.
Migliaccio likens it to the flight attendants’ instructions before takeoff.
“They say when the oxygen comes on, put your own mask on first and then put it on your child,” Migliaccio says.
In other words, if you aren’t able to take care of yourself financially, you provide even more problems for your kids down the road.