Got a grown child who's struggling financially? These strategies let you lend a hand without offering a handout.
If you have an adult child who’s still on the family ticket, you’re probably getting tired of kicking in for everything from cell phone bills and health insurance to rent and groceries—and you may be more than a little worried about how your kid’s prolonged dependence will affect your own financial plans. (Retirement at 75 instead of 65? Not an appealing picture.) Yet when your child is struggling to make ends meet, what else can a loving parent do but cough up a few bucks (or a few hundred, or a few thousand), as needed?
Plenty, actually. If you’re among the many parents providing financial assistance to an adult child—nearly three quarters of people ages 40 to 59 with at least one grown child say they helped to support an adult son or daughter in the past year, the Pew Research Center reports—understand this: A handout is not the only way to ease your offspring’s transition to financial adulthood. In fact, in most cases, it’s not even the best way, since a bailout doesn’t teach Junior how to stand on his own two feet.
Here are six ways you can help your adult kids financially that don’t involve withdrawals from the Bank of Mom and Dad.
1. Be their financial BFF.
More than cold, hard cash, millennials need guidance about navigating the adult world of money. After all, they don’t teach you how to pick funds for your 401(k) in college or about the best way to set up and stick to a budget. Indeed, a study earlier this year from the FINRA Investor Education Foundation found that only about a quarter of twentysomethings were able to get a passing grade on a basic five-question financial literacy quiz, leading study author Gary Mottola to conclude: “Younger Americans lack the financial knowledge to make well-informed decisions,” which leads many of them to “engage in behaviors that are detrimental to their financial health.”
Since your child may be reluctant to admit just how little he knows about this stuff—or doesn’t know how much he doesn’t know—it’s up to you to introduce the subject. Best bet: Ask a leading question or two, using your own experience to ease the way into a conversation, rather than telling him what to do or not to do. For instance, you might offer that your company has just changed the choices in your retirement plan and you’ve had to switch investments, then add, “By the way, have you had a chance to sign up for your 401(k) yet? Need any help with the forms or figuring out which funds to go with?”
2. Share your own money mistakes.
Over the years, chances are you’ve messed up plenty when it comes to managing your money, especially when you were first starting out. What kid, of any age, isn’t secretly delighted to hear about a parent’s screw-ups? This approach to talking about money makes you seem more, well, approachable, and allows you to introduce a discussion about financial pitfalls and how to recover from them without seeming like you’re judging or lecturing. “You don’t want to be a paragon of perfection,” says Jayne Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially. “You want to create this bond where your children can share their own mistakes and hopefully learn to avoid some of the poor choices you made when you were younger.”
3. Offer practical tools to succeed.
Twentysomethings are creatures of the digital age, and will likely feel comfortable using one or more of the many websites and apps that help users manage their money. Sites like mint.com, youneedabudget.com, budgetracker.com, budgetpulse.com, and learnvest.com all offer financial newbies an easy way to create and stick to a spending plan, manage debit and credit cards, track expenses and bills, and generally become smarter about saving, spending, and borrowing. The mint.com app even includes an alert that signals when the user has gone over a set budget. Maybe you should consider signing up too.
4. Help them lighten their load.
Seven in 10 students who attended four-year colleges graduated with loans outstanding, according to the latest stats from the Project on Student Debt—at public colleges, the average is $25,550, a 25% increase in five years, and at private schools, the average is $32,300, a 15% jump since 2008. Little wonder, then, that so many millennials are struggling financially (46% of them worry about having too much debt, the FINRA study found). One way Mom and Dad can help is to provide information about programs that help lower the monthly bills for college loans, such as income-based repayment plans for federal borrowing. Instead of the standard 10-year payback term, monthly payments under this program are capped at 10% or 15% of the borrower’s discretionary income, depending on when they took out the loans. Although your kid may rack up more interest over a longer payback period, the plans make payments more manageable now and any balance remaining after 20 or 25 years of consecutive payments will be forgiven. If your child is a teacher, works for the federal government or has another public-service job, she may also qualify for loan forgiveness after 10 years. (Get details from the Department of Education here.)
Financially strapped young adults can also benefit from having a credit card to fall back on and occasionally bridge the cash-flow gap from paycheck to paycheck. One gift you can provide is to point them to plastic with training wheels — that is, a card that can help them in a financial pinch without allowing them to get into too much trouble. A good option: Northwest FCU FirstCard. Specifically designed for first-time cardholders, this no-fee card has an ultra-low fixed APR of 10% (most cards are variable rate; recent average rate: 15.7%) and a credit limit of only $1,000 so the cardholder can’t get too overextended. Bonus: Applicants are required to take a 10-question quiz about credit, so there’s an educational element too. You must be a credit union member to apply, but this only requires a $10 donation to the Financial Awareness Network.
5. Make some introductions.
To get into the field she wants or maybe even to land that first salaried job, your child will need to network. You know people, and your people know people. Help her out by sharing her job search with your friends, coworkers, and clients, who may be able to recommend folks who’d be willing to meet for an informational interview or who will pass along news of appropriate job openings.“The best thing you can do is introduce your child to a professional in their field who can answer her questions, connect her with others, and just talk about the job,” says Jenny Erdmann, who helps direct Money MindEd, a teen financial education program.
6. Share a valuable secret.
When your kid’s pressed for cash, it may seem odd to stress the importance of saving, but do it anyway. Even putting aside a small, say, $25 a week, can get her in the habit of saving and make a big difference down the line. The sooner your child starts saving, the less of her own funds she will need to contribute to meet her financial goals, thanks to the power of compounding earnings on her investments. That’s an invaluable lesson to learn at a young age.
The secret to saving, as anyone who’s ever signed up for a 401(k) at work knows, is to automate it: Set up a savings plan at work or through a bank or mutual fund company that will automatically shift a set amount of your choosing at regular intervals (say, weekly or monthly) from your paycheck or a checking account into an investment account. Young people can start small, use automated savings plans to build up both an emergency fund and a retirement plan, and then increase the amount every time they get a raise. Studies show that people who do this end up with substantially more money than those who do not automate. “The biggest mistake someone can make is to push things off and wait for years to go by before they think about savings,” says Suze Orman, author of The Money Book for the Young, Fabulous & Broke. “Time is the most important ingredient in the financial freedom recipe.”
That’s a pretty cool concept for Mom and Dad to pass along.
Two years out of college? Forever? People tell our Mannes on the Street when they think it's time to cut the financial cord.
One of the first things you find out as an expecting parent is that the receipts for kid-related spending start piling up almost before you receive confirmation from the pregnancy test. Soon after, it becomes clear that debits from your account will rack up for at least the next 18 years. According to the USDA report Expenditures on Children and Families, “a middle-income family with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, childcare and education, and other child-rearing expenses up to age 18. Costs associated with pregnancy or expenses occurred after age 18, such as higher education, are not included.” For some parents, these costs will continue well after your little one receives the college diploma.
The photographers presented in this week’s Photo Bank gallery document the bringing up of baby to adulthood. While none of these artists specifically tackles the financial costs of raising a kid, they all intimately explore the tipping of the scales that occurs as children grow from dependents to independents over time. Here, images from their varied projects are presented with some statistics of costs that are above and beyond the USDA report.
What this collection of photographs makes clear is the psychology behind why the costs of child-rearing are so high. Phillip Toledano, for example, explores the anxiety-addled brains of new parents who are fraught with self-doubt and fear of the unknown. Toledano struggled to become comfortable with the massive changes that came with the birth of his daughter; his photos capture the new father’s progression from feeling detached to enjoying a close relationship with his child as she grew.
Other artists like Jamie Diamond and Julie Blackmon act out moments that are part autobiographical and part fictional. Diamond poses herself in vignettes with a baby doll to explore the mother-child relationship. Blackmon stages multi-layered scenes of family life that have a strange, wry, or whimsical twist—juxtaposing an enduring sense of nostalgia with keenly contemporary details. Colie James, Ginger Unzueta, and Kelsey Hunter document through still-lives what is left behind by a child’s fleeting presence—rearranged toys on shelves at a store, half-eaten peanut butter and jelly sandwiches, a handful of baby teeth. James Ransom explores the interiors of a school his kids passed through before graduating to their next class. Mark Nixon heroicizes much-loved and well-worn teddy bears, and child-at-heart Alex Eylar plays with Legos and reconstructs popular movie scenes with them.
Rebecca Greenfield, Gillian Laub and Amy Anderson explore rites of passage into adulthood like proms, bar and bat mitzvahs, and quinceañeras. Brian Finke documents with wit college tailgaters at Ole Miss—a time when children are “free” from their parents and exercise their own independence. Damon Casarez portrays those “boomerang kids” who, despite finishing college, are forced to move back in with their parents out of financial necessity, and Julien Mauve poses family and friends in scenes with his childhood toys to explore how our sentimentality for them continues into adulthood.
These images illustrate the love for one’s children that drives even the most frugal of parents—the ones who swore pre-parenthood they would never, ever spoil their child—to get so excited by their baby’s interest in Goodnight Moon that they buy her a board book collection that rivals the Library of Congress. And who, so flustered and exhausted they try to drink their coffee out of the baby bottle, just need the happy image of their Peanut sporting a cool pair of Babiators to will themselves awake at 2 a.m. and put her back to sleep for the fifth time that evening. They explore how the initial fear and self-doubt about being prepared for parenthood and building the perfect nest continue well beyond the first months. Those are compiled with new long-term concerns: making sure that their child has what he or she needs to thrive academically and socially, and preparing their teen to eventually leave the nest and finally come into being as an adult.
This is part of The Photo Bank, a new section of Money.com dedicated to conceptually-driven photography. From images that document the broader economy to ones that explore more personal concerns like paying for college, travel, retirement, advancing your career, or even buying groceries, The Photo Bank will showcase a spectrum of the best work being produced by emerging and established artists. Submissions are encouraged and should be sent to Sarina Finkelstein, Online Photo Editor for Money.com: email@example.com.
Young adults are the most underinsured generation of our time, which makes sense—up to a point.
Millennials are the most underinsured generation alive today—which makes a certain amount of sense. They have relatively few assets or dependents to protect. Still, the gaps in coverage are striking and offer further evidence that this generation has been unusually slow to launch.
Roughly one in four adults aged 18 to 29 do not have health insurance, twice the rate of all other adults, according to a survey from InsuranceQuotes.com, a financial website. (Other surveys have found lower uninsured rates, but this age group is still the most likely to go without.) Millennials are also far less likely to have auto, life, homeowners, renters, and disability coverage.
Young adults have always been slow to buy insurance. They often feel invincible when it comes to potential health or financial setbacks. But something additional appears to be at work here. This generation has famously overprotective parents who awarded them trophies just for showing up. Millennials may view moving back home or calling Mom and Dad for a bailout as their personal no-cost, all-purpose insurance plan.
Millions of young adults routinely boomerang home after college or get other family financial support. The trend is so broad that psychologists have given this new life phase a name: emerging adulthood, a period that lasts to age 28 or 30. MONEY explores this trend, and its costs, in the September issue reaching homes this week. Remarkably, the parents of boomerang kids don’t seem to mind providing the extended support.
A quarter of parents supporting an adult child say they have taken on additional debt; 13% have delayed a life event, such as taking a dream vacation; and 7% have delayed retirement, the National Endowment for Financial Education found. Yet 80% of such parents in a Bank of America Merrill Lynch survey say helping is “the right thing to do,” and 60% are willing to work longer, 40% to go back to work, and 36% to live with less if that’s what it takes to help their adult kids.
“Millennials have had very supportive parents throughout their life,” says Laura Adams, senior insurance analyst at InsuranceQuotes.com. “When you don’t have a fear of the unknown, a fear of life’s what-ifs, you are not likely to think about insurance.”
Yet young people overlook certain types of insurance at their peril—even though these policies may be relatively inexpensive. Most striking is how many skip health insurance, even though the Affordable Care Act mandates coverage and allows children up to age 26 to remain on a parent’s plan. Millions more young people now have health coverage as a result, recent studies have found, and their uninsured rate has dropped. But, still, as many as one in four still go without.
This may be classic pushback against a law young adults see as unfair. They understand that their insurance premiums subsidize the health benefits of older Americans who are far more likely to need care. Yet if Mom and Dad won’t pick up the bill, a visit to the ER can cost $1,000 or more for even a simple ailment. Things get much more expensive for broken bones and other treatments that even the young may need. Among other findings:
- 64% of millennials have auto insurance, compared to 84% of older generations. Many millennials may have decided to skip car ownership. But if you rent a car or borrow one from your roommate, you have liability. It probably pays to have your own policy, which might cost $30 a month.
- 10% of millennials have homeowners insurance, compared to more than half of those aged 30 to 49 and 75% of those 65 and older. Fewer millennials own a house, for sure. But this generation isn’t buying renters insurance either: only 12% have it. Renters insurance is cheap: $10 to $15 a month, and it comes in handy not only when someone steals your bike from the storage area but also if Fido bites a neighbor.
- 13% of millennials have disability insurance, compared with 37% of those 30 to 49. This kind of coverage costs around $30 a month and may seem unnecessary. Yet one in three working adults will miss at least three months of work at least once in their life due to illness, Adams says, adding, “Anyone can throw out their back.”
- 36% of millennials have life insurance, compared with 60% of those 30 to 49. Again, this coverage is relatively cheap: around $20 a month for $500,000 of term life. If you have no dependents you might skip it. But if you have debt that Mom and Dad co-signed, you should have enough coverage to retire the debt. It’s only fair, given your parents’ years of extended financial support.
For an upcoming story in MONEY, we’re interested in talking with young adults who are getting financial help from Mom and Dad. The level of support could range from receiving help paying for a cell phone or health insurance plan to having your parents help subsidize other expenses (car, rent, or furniture, say) or continuing to live at home or getting help with other major expenses, such as the down payment on a house.
Among the questions we’d like to explore:
- the specific kinds of expenses your parents help you pay for
- why you need the financial help
- how much support you’re receiving (estimated amount)
- how long you expect the support to continue
- How you feel about the support you’re receiving
If your family situation fits the bill, we’d love to hear from you. Please send us a short summary of your situation, including your age, the circumstances and any other details you care to share and think are important. Be sure to include your name and contact info (email address and daytime/evening phone number) so we can follow up with you.
Your Mom and Dad may be better off than you knew. But how well are they managing their finances?
Parents and their adult children often aren’t on the same page—and that’s especially true when it comes to money issues. But a new study uncovers a surprisingly big disconnect when it comes to understanding how prepared your Mom and Dad are for retirement. In many cases, the parents may be in better financial shape than their kids realize.
Three-quarters of parents and their adult children agree that it’s important to have frank conversations about wills, estate planning, eldercare and covering retirement expenses, according to Fidelity’s 2014 Intra-Family Finance Generational study out today. Yet 40% of parents surveyed say they haven’t had detailed conversations with their children about any of these topics, while 60% say they feel more comfortable talking to a financial professional than to their kids about their personal financial situation.
“Finances are always a difficult topic to broach with children. Parents want to retain their independence and they don’t want to be a burden to their children,” says John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity. “People in the sandwich generation know how tough it is from taking care of their own parents.”
The communication gap skews the expectations adult children have about taking care of their parents—and it adds to their stress about saving enough for their retirement. One out of three adults say they expect to support their Mom and Dad financially but 96% of parents say it won’t be needed.
The parents’ confidence may come in part from misunderstanding their retirement income needs. The survey found that 70% of parents don’t know exactly how much money they will have to live on in retirement, up from 65% when Fidelity did the survey two years ago.
The recent bull market may have also lulled parents into complacency. “It’s easy for people to become overconfident about their ability to manage their money,” says Ken Moraif, a senior advisor at Money Matters, a financial advisory firm in Dallas. “They don’t take into account that bull markets don’t go forever.”
Another startling gap from the survey: adult children underestimated the value of their parents’ estate by a whopping $300,000 on average. (The survey participants were an affluent group—parents were 55 or older, had children older than 30 and at least $100,000 in investable assets.)
Parents say a big reason they don’t talk to their kids about their personal finances is that they don’t want their kids to count too much on their future inheritance. Of course, that doesn’t mean parents will be passing on that wealth to their kids. Only half of American retirees are planning to give an inheritance to their children, according to a recent HSBC survey.
There’s also a big misunderstanding about who will care for Mom and Dad if they become ill. Nearly half of adult children expect to take care of a parent but only 6% of parents expect their kids to do that, the survey found.
“Adult children may plan to take care of their parents at the expense of other financial goals. If they know how those things will be funded, they can make better decisions about their own retirement,” says Sweeney.
Have these conversations before a health issue or financial problems crop up. “It’s much easier before there is a crisis,” says Moraif.
Of course, the hardest part is getting the conversation started. You could share a story about a friend who ran into problems because her father passed away before letting his children know how to find important documents. Another approach is to talk about your own plans for retirement and then inquire about how they are preparing.
“Tread lightly but sincerely with your parents. If they feel you’re coming from a place of love and caring, they’ll be more open. If they think you just want to know how much money they have for your inheritance, it’s not going to be a good conversation,” says Moraif.
For an upcoming story in MONEY, we’re interested in talking with parents who are helping to financially support their adult children—and with young adults who are getting financial help from Mom and Dad. The level of support could range from keeping the kids on the family cell phone and health insurance plans to subsidizing other expenses (car, rent, or furniture, say) to the adult children continuing to live at home or helping with other major expenses, such as the down payment on a house.
Among the questions we’d like to explore:
- the specific kinds of expenses you pay
- why your adult child needs your support
- how much support you’re giving (estimated amount)
- how long you expect the support to continue
- what impact, if any, helping your adult child has had on your own financial situation
- How you feel about the support you’re providing
If your family situation fits the bill, we’d love to hear from you. Please send us a short summary of your situation, including your age, the age of the adult child(ren) you’re helping financially, the circumstances and any other details you care to share and think are important. Be sure to include your name and contact info (email address and daytime/evening phone number) so we can follow up with you.
More often than not, the phrases coined to describe the rising ranks of grown adults living with their parents are subtle backhanded insults. And sometimes the insults aren’t subtle at all. Here are a handful of phrases that have popped up in recent years to categorize the millions of adults who live with their parents—typically moving back home for financial reasons after living on their own for a few years, or perhaps a few decades.
This is probably the most common (and also probably the least offensive) phrase for describing the legions of young Americans in their mid-20s to mid-30s who have moved back in with their parents after a stint of independent living. A 2012 Pew Research Center study focused on this increasingly large group—report title: “The Boomerang Generation”—indicated that while a majority were frustrated they didn’t have enough money to live the life they wanted, most were also happy with their living arrangements bunking with mom and dad once again.
Members of this special breed of boomerang offspring are not only old enough to live independently, but also old enough to have adult children of their own. Essentially, they’re middle-aged Baby Boomers who have fallen on times so tough that they’ve been forced to move back in with their elderly parents, who are likely to be retired and perhaps not in the best financial condition themselves. The rise of “boomerangers” was understandably noticeable during the heyday of the Great Recession in 2009, and the unfortunate trend hasn’t gone away. Just this week the Los Angeles Times ran a story on the increase in adults in California ages 50 to 64 who have moved back home with mom and/or dad—a 68% rise from 2007 to 2012.
Earlier this year, Le Monde attempted to chronicle the rise of this trend in France, a task that proved difficult because “middle-aged people who live with their parents are often ashamed,” and few were willing to speak about their first-hand experiences.
It’s no coincidence that many “Boomerangers” also have another (insulting) label slapped on them: “Unemployables.” As CNN Money noted, because workers in their 50s who lost their jobs in recent years were less likely than younger people to subsequently become re-employed, a Boston College study dubbed them the “new unemployables.”
This phrase is largely credited to a New York Times op-ed that encouraged young Americans to move to hop on a Greyhound bus and move to a state with low unemployment, such as North Dakota. The column’s authors wrote that they expected few to follow that advice, because “young people are too happy at home checking Facebook,” among other reasons. “Generation Y has become Generation Why Bother,” the op-ed sums up.
A Clark University professor’s research into young adults who have no good job prospects and no clear career path—and who of course still live with their parents—refers to them as “growing-ups,” as well as the more positive “emerging adults.”
Leave it to the United Kingdom to come up with this humdinger. According to a survey published last summer, some three million parents over age 50 had grown children living at home—a category the poll called “failed fledglings.” A corresponding 16-page “Parent Motivators” booklet was published in order to help parents cope with adult kids back in the nest, and the contents reportedly included “tips about how to get rid of children who you would prefer to have moved out.”
Masahiro Yamada, a sociology professor at Tokyo Gakugei University, came up with this lovely phrase to describe Japanese women (men too, but it’s mostly women) in their 20s and 30s who grew up in the ’80s and ’90s and had decent jobs—but were considered parasitic because they never got married, hadn’t yet had children, and lived a carefree consumerist lifestyle under their parents’ roofs. Interestingly, news outlets noted a widespread effort to marry parasite singles off in Japan via dating services and old-fashioned family matchmaking in the late ’00s—about the same time that the Great Recession was wreaking havoc across the globe, sending tens of millions of adult children boomeranging back into their parents’ homes.