Financial support for adult children deprives Americans of their retirement savings - ForumDaily
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Financial support for adult children deprives Americans of their retirement savings

Financial independence, which was once the hallmark of adulthood, has now faded into the background, as adult children increasingly depend on their parents to help them cover their rental expenses, student loans, medical insurance, and much more.

Фото: Depositphotos

But the desire of parents to provide financial assistance to their children can be erroneous and even backfire in the long term, writes CBS News.

According to a new study by Bankrate.com, half of American parents cannot accumulate as much as they would like to retire, and their adult children are often to blame for this, whom parents still consider to be dependents.

Despite good intentions, parents who financially support their grown-up children often find themselves in a difficult situation after reaching retirement age. They can also accidentally harm their children.

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Experts believe that instead of financing the lifestyle that their adult children cannot afford, parents can better control their finances and teach their children financial independence.

17% of couples interviewed by Bankrate.com said they “donated” their own retirement savings to help their adult children. Another 34% said that they "partially" donated their savings accounts.

Not surprisingly, the people with the lowest earnings postponed the least. 17% of couples earning less than 50 000 dollars per year and having at least one child aged 18 and older said they help pay their adult children’s bills but don’t save for retirement.

Generation gap

The study showed that there is a difference between generations when it comes to the perception of parental support for adult children. According to the study, millennials aged 23 to 38 think that parents should provide them with longer financial support and expect that some expenses, such as student loans, will be covered up to 23 years. At the same time, baby boomers believe that parents should separate children from their bank accounts earlier, in almost all categories of expenses, including cell phone bills, car payments and transportation costs.

But this gap narrows when it comes to necessary, high costs, such as health insurance, for which young people must take full responsibility for 23 years.

Why is this happening?

This is due to the 2008 financial crisis of the year and the Great Recession, which led to a lack of substantial wage growth.

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Wage growth only recently rose to 3,4 percent, a 10-year high, suggesting the US is still emerging from the crisis.

The growing popularity and cost of higher education

Social norms have also changed: many young people prefer to receive higher education, which delays their entry into work. Young people no longer feel the need to immediately go to work - full-time or part-time - after graduating from high school or college.

And by the time these degree holders enter the “workforce,” they are saddled with student debt, hampering their ability to achieve financial independence milestones like buying a first home or car and contributing to a decline in small business creation. This is because the average monthly student loan payment is about $400 per month or $4 per year.

Implications for parents

Experts are not worried that parents support their children, but that they do it at the expense of their own pension savings. They also do not receive income from investments in savings accounts, since this money often goes to support children.

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This keeps older Americans at work longer. According to an AARP study, workers older than 55 have taken almost half of all new jobs in 2018 years, although they make up less than a quarter of the country's labor force.

The kids got hurt too

According to mental health experts, this is an extremely bad idea for parents to support their adult children. Providing their offspring with finances at a mature age can deprive them of the formation of important tools that will serve them in later life.

If they don’t care about their own finances, they don’t learn to manage accounts, donate or be financially independent.

Relations psychiatrist Dr. Laura Dabni explained that, despite good intentions, it is unwise to prolong such support. According to her, children develop self-esteem, self-pondering and overcoming obstacles, including financial ones.

Dabney suggests parents instead engage in dialogue with their children in order to better understand their thought processes and also teach them how to solve problems.

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