by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Parents have long tried to set up their children for success, but today that assistance is costing ever more, and lasting far longer. The cost of a four-year private college averages $48,500 a year, double what it did in the late 1980s. And financial independence is increasingly delayed. About 15% of 25- to 35-year-olds were living at home in 2016, based on a Pew Research report. That’s five percentage points higher than the share of Generation Xers living at home when they were the same age, and almost double the share of today’s older retirees who were in the same situation years ago.
Parental help often starts small, covering expenses such as cellphone bills, car payments, groceries, or health insurance. But temporary assistance can quickly turn permanent and pricey, financing rent and down payments, grandchildren’s college educations, and support for offspring going through divorce or battling drug addiction.
Nearly 80% of parents give some financial support to their adult children—to the tune of $500 billion a year, according estimates by consulting firm Age Wave. That’s twice what parents put into retirement accounts, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave. Almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs.
Ten years of a bull market and a growing comfort with debt have made this largess easier to rationalize. But incurring additional costs just before or just into retirement can be problematic—especially now, as the outlook for stock returns is about half what it was in the past 10 years. While most people are well aware of the threat posed by a sharp market downturn just as they begin to tap their savings, they’re less attuned to how helping their children can pose a similar danger, and imperil decades of judicious savings.