The newest retirement savings challenge is the thirtysomething who still gets parental financial support.
In a recent survey done for a financial planning organization, 13 per cent of parents with children age 34 and older said their sons and daughters are financially dependent on them. Twelve per cent said their kids in this age bracket are causing a strain on them financially. How inconvenient – parents with thirtysomething children should be reaching peak retirement-savings momentum.
It's virtually the new normal for young adults to get some form of financial support from their parents, be it paying for cellphone bills or help with rent and house down payments. But this story is framed as one that involves Generation Y, aka millennials, who were born between the early 1980s and the mid to late '90s.
A slightly older cohort – call them late Generation Xers or the leading edge of Gen Y – is also struggling to some degree. Just over one in 10 seem to be regarded by their parents as a financial drain.
Canada is expected by one international forecaster to lead the G7 industrialized countries in economic growth this year. But we're coming off a long period of weak growth that has made it difficult for young adults to get established in the work force. That's one reason why so many thirtysomethings are still seen as dependent by their parents.
Other factors could potentially include expensive housing that sucks people into unmanageable financial commitments, marital breakups and the influence of new arrivals to Canada who see it as normal and sensible for young adults to live at home until they are married.
Parents, themselves, may also be part of the story. What they see as neediness on the part of their adult children may actually be an example of financial helicopter parenting. For example, the answer to expensive houses may just be for your adult kids to rent or live in a condo or townhouse, not get a down payment from mom and dad.
The survey of 1,527 parents was conducted by the polling firm Leger on behalf of the Financial Planning Standards Council, which oversees the Certified Financial Planner (CFP) designation. The point of the survey was to look at the extent to which parents are providing financial assistance to children.
Almost 40 per cent of parents with children between 18 and 34 agreed strongly or somewhat with the statement that their offspring were financially dependent on them, and 33 per cent agreed strongly or somewhat that their children are causing a financial strain. These results are right in line with what you'd expect if you're in touch with the challenges that young adults have experienced in recent years.
The surprise is the significant number of adults aged 34 and older who are still a financial factor in their parents' lives. Roughly 12 to 13 per cent of parents with children in this bracket agreed strongly or somewhat that the cost of helping them afford the cost of a postsecondary education has already caused, or will cause, them to postpone retirement or prevent them from paying off debt. The comparable number for parents with children aged 18 to 34 was 32 to 33 per cent.
The survey goes into detail on just one aspect of parental financial help – assistance in buying a house. Twenty-seven per cent of parents of children aged 34 and up said they intend to help their kids with the purchase of a first home, and 11 per cent said they intend to use retirement savings, or have already done so.
It's fine for parents with available cash to help their adult children buy a house. But using debt or withdrawing money from retirement savings to do so amounts to giving money you can't afford to someone so they can buy an asset they can't afford. Thirtysomethings who can't afford to buy might best be helped if you stop judging them for being renters or owning a condo instead of a house.
Men, listen to your wives when discussing whether your adult children need help buying a home. The FPSC survey found that women were significantly less likely than men to want to do this. Men were also more willing to postpone retirement to provide help with a home purchase.
Rob Carrick