How to Juggle Adult Children’s Financial Needs and Retirement Savings

By Jeffrey Jensen Arnett and Elizabeth Fishel

In decades past, parents stretched to pay for their students’ college tuition and expenses for four years, and then the check writing stopped. But today’s lengthened road to adulthood and challenging economic realities are pressuring the Bank of Mom and Dad to stay open much longer. For emerging adults in the 21st century, becoming financially independent, like finding lasting love, solid employment and a permanent separate address, is taking much of their 20s to accomplish.

In the 2012 “Clark University Poll of Emerging Adults,” a national survey of 18- to 29-year-olds, nearly all the 18- to 21-year-olds were receiving regular financial assistance from their parents, but even among the 26- to 29-year-olds, 60 percent reported getting at least occasional financial help from mom and dad.

About half of college grads have student debt, which averages about $29,000. Consistently, the “youth unemployment rate” (for 15- to 24-year-olds) is twice as high as the overall unemployment rate. Rental rates for apartments in urban areas have skyrocketed in recent decades, especially on the East and West coasts—which is where most emerging adults want to live. Consequently, many young people in these areas either live with their parents well into their 20s or even 30s, or they receive parental help when the rent comes due. These can be scary times as parents wonder, “Will my child ever be able to find a job and make it independently?” and worried young people ask themselves the same question.

Parents and their adult children generally get along well, much better than when the kids were adolescents, but the number one source of conflict between them is money. Almost half of the parents in the 2013 “Clark University Poll of Parents of Emerging Adults,” called it the top source of conflict between them and their 20-somethings—ranking it above arguments about school, work and alcohol use. Few topics are as emotionally charged, deeply personal, overlaid with family traditions or culturally complex as money. 

Boomerang Kids

About 45 percent of 18- to 29-year-olds “boomerang” home at some point in their 20s, our research found, because of unemployment, underemployment, high student debt or unaffordable urban rent. This phenomenon is so widespread that it’s no longer surprising or as tinged with stigma as it once was, although it can certainly cause anxiety in both generations.

When parents provide room and board to boomerang kids who aren’t yet financially stable, asking kids to make a token monthly contribution—say, $100 to $200—can make a positive difference to both generations. Many families need the help defraying monthly costs. But there are also benefits for the grown children of families who don’t strictly need the cash. Asking emerging adults to pay a monthly sum, even if small, is good practice for the years of steady bills that lie ahead. Grown children’s contribution to the family’s expenses says they don’t take Mom’s and Dad’s help for granted. It’s a hedge against entitlement and also builds responsibility and money management skills, all steps toward eventually flying free.

Saving for Retirement vs. Helping Grown-Up Kids

Middle age adults vary greatly in retirement readiness. Some parents ages 45 to 50 have just begun to save; parents in their 50s or 60s may or may not have built up a decent nest egg. It can be a complicated and emotionally fraught equation for parents juggling their financial needs with those of their aging parents and grown children. Many financial counselors suggest parents increase contributions to their retirement accounts after college bills have ended and spend no more than 5 percent of their savings or investments on grown children’s needs each year.

Financial Independence

Most emerging adults are striving steadily to reach financial independence, and by age 30, most have at last gained stable employment with an income high enough to make them self-sufficient (often combined by then with a spouse or partner’s earnings). Like their parents, they look forward to the day when the Bank of Mom and Dad can close its doors for good. Until then, during these financially uncertain years, any judicious help (along with limits and frank conversation) that parents are able to provide will enhance the likelihood that emerging adults will flourish in their 20s and beyond.  

Jeffrey Jensen Arnett, Ph.D., and Elizabeth Fishel are co-authors of Getting To 30: A Parent’s Guide to the 20-Something Years. Arnett is a professor in the Department of Psychology at Clark University in Worcester, Mass., and directed the studies mentioned in this post. Fishel is the author of four other books on families, including Sisters and Reunion.