So many parents are supporting their adult kids today that it's time to start rewriting the manual for 50-plus personal finance.
Retirement, downsizing the family home and inheritances must all be freshly considered in light of new survey findings that show the Bank of Mom and Dad is keeping large swaths of Generation Y afloat. If you thought young adults moving back home was the extent of Gen Y's impact on parents, you're only half right.
Gen Y's young adults are already known for having close emotional ties to their parents. The financial side of this relationship is highlighted in the Yconic/Abacus Data Survey of Canadian Millennials,which was conducted for The Globe and Mail earlier this year and involved 1,538 young people age 15 to 33.
The survey results tell us that many young adults are doing fine – getting jobs, saving money, buying homes and having kids. But the overall level of financial dependence on parents is too significant to brush off.
I discussed Gen Y's struggles in a column earlier this week. A standout finding from the Yconic/Abacus survey was that 43 per cent of young adults age 30 to 33 said they had not achieved financial independence from their parents. You can see this in the way parents are helping their Gen Y children:
- Pay off their student loans: 37 per cent of poll participants said their parents had done this, or that they expected this.
- Pay their bills: This is happening with 42 per cent of 20- to 24-year-olds, 28 per cent of 25- to 29-year-olds and 17 per cent of 30- to 33-year-olds.
- Buy a home: One in four said parents have helped with a down payment, or will.
As for moving back home, almost 30 per cent of 25- to 29-year-olds in the survey lived at home, as did 18 per cent of 30- to 33-year-olds. Statistics Canada's 2011 census data showed that 42.3 per cent of young adults aged 20 to 29 lived at home, compared to 27 per cent in 1981. This shift was a big story a few years back. In fact, I wrote a book about it – How Not to Move Back in With Your Parents: The Young Person's Complete Guide to Financial Empowerment. It's now clear that parental support of adult children is more extensive than we thought, and thus something to be reckoned with in matters such as saving for retirement.
The sweet spot for retirement saving is from your mid- to late-50s through to whenever you leave the work force. Traditionally, this is the time when parents are clear of the costs of helping their children get through university or college, and finishing off their mortgage. Much money is suddenly freed up for saving.
Supporting adult children into their 30s means it will be harder to find money to top up your retirement savings when you're in your 50s and early 60s. Parents who save consistently through the decades will be better off.
Downsizing by selling the family home is another financial milestone that parents may rethink. As the survey results make clear, many young adults simply don't have the financial wherewithal to rent an apartment. They may need to remain at home for longer than parents expected, possibly many years.
On estate planning, parents may want to consider financial help given to adult children as an early inheritance. This applies particularly to home down payments, which in today's high-cost real estate market are huge, even at the minimum 5-per-cent level.
The Yconic/Abacus survey offers some of the first data to be seen on parents helping young adults buy a home. Among participants who already own a house, 32 per cent indicated that their parents helped them to make a down payment.
Ideally, parents will not go into debt to help their adult children, and neither will they dip into their retirement savings. But this has to be happening already, given the high level of support that parents appear to be providing to grownup children. Let's just say that parents should create a budget to see how much help they can realistically afford to give. Take the number to your kids and talk about their obligations, be they a token monthly rent, duties around the home or something else.
Unmentioned so far is the question of how much financial support today's parents will need to give to their own parents. Keep that in the back of your mind when considering whether to help your kids buy a home.
Check out our new Gen Y blog, where a 20-something recent university graduate will chronicle her real-life journey of embarking on a career, struggling to repay her student debt and trying to find her financial footing.
Follow the discussion on Twitter (hashtag: #genYmoney).