At dinner with friends the other night, Sarah, a mother of two young adults, said something that struck me. We’ve all heard how hard young adults have it during this recession. Latest estimates are that more than 50% of recent graduates are either unemployed or underemployed (working at a job they’re overqualifid for). But as Sarah said, it might just be the parents who are getting the rawest deal.
“We expected to be supporting our kids for only so long,” she said. “We’re the ones who are squeezed. We hadn’t planned on this part.” Indeed. Rising health care costs (and now young adults can stay on the family plan until age 26, adding to the fee), decimated 401ks, aging parents, and falling housing values are all added on to a new cost: supporting their young 20-somethings.
Indeed, a new study by the University of Michigan for the MacArthur Network on Transitions to Adulthood (whose research I based my book on), finds that 60% of young adults age 19-22 received money from their parents in the past year, and the amounts were not unsubstantial: on average, $7,500. And that was before the recession. It is sure to have risen.
Familial Financial Assistance to Young Adults, [pdf] by Patrick Wightman and Robert Schoeni of the University of Michigan’s National Poverty Center, and Keith Robinson of the University of Texas at Austin, uses data from 2,098 interviews conducted between 2005 and 2009, with young men and women and their families to examine how much parents are giving and for what.
“Young people in the U.S. are taking longer to leave home, finish their schooling, get stable jobs, get married, and have children,” says Wightman. “And the slow transition to traditional adult roles has been accompanied by an increase in the financial support young adults receive from their parents.”
Interestingly, the researchers found that a child’s demeanor early on predicts how much financial help they will receive later. So any 12-year-olds reading this: shape up and play nice.
“Basically,” says Wightman in a press release, “this finding shows that parents are more inclined to provide extra support to children whom they perceive as more positive and outgoing. They’re more likely to help those who, even at a young age, help themselves.”
About 65 percent of the young adults lived at home for a significant portion of every year, and the analysis did not include the value of room, board or food. However it did include money for housing away from home, a vehicle, college tuition, help paying pills or just as a gift or personal loan.
Among the key findings:
- About 42 percent of respondents reported their parents helped them pay bills, with those receiving help getting an average of $1,741;
- Nearly 35 percent of young adults said their parents helped with college tuition, with those receiving help given an average of $10,147;
- About 23 percent received help with vehicles (about $9,682 on average);
- About 22 percent received help with their rent away from home ($3,937 on average);
- About 11 percent said they received loans from their parents ($2,079 on average) and nearly 7 percent said they received financial gifts (average amount of $8,220).
“As expected, we found a large difference between high- and low-income families both in terms of whether or not they provided financial help to young adult children, and in terms of the amount they provided,” says Wightman.
About 80 percent of high-income parents provided help to young adult children, Wightman found, compared with slightly less than half of low-income parents.
“The gap is especially large for education related assistance,” he reports, which is pause for concern, given the widening income disparity in the US between those with and without college degrees. “While just 11 percent of low-income youth received tuition assistance from their parents, 66 percent of high-income youth did. And among those who did get help, kids from high-income families received an average of $12,877, compared to $5,788 for those from low-income families.”
Still, he reports, poorer families who did help their young adult children provided as great a share of their income overall as wealthier families did – about 10 percent.
Ten percent of household income is the unexpected outlay that my friend Sarah was talking about. When Boomers like Sarah were starting out in life, they felt they had a clear idea of how life would unfold, and part of that was that they would financially support their children until they were 18 and then their kids would be off on their own. They also thought they’d have a pension to fall back on, and health care costs were the last thing on their minds. But in their lifetime, everything has changed. The pensions are gone along with job security. Health care costs have risen astronomically. And now, their children are remaining at home longer as the paths into adulthood stretch out longer. It’s enough to cause anyone gray hair.
What are your thoughts? Should parents continue to support their kids? How much do you spend on your young adult kids? Are you sacrificing your retirement income to offer this support? Is there a benefit to all this?