Time to be selfish

I appreciate this is an American magazine; however I strongly suspect the trends spoken about are quite similar.

Baby boomers are putting their retirements at risk by spending too much on their adult children. With real wages stagnant and unemployment among those age 16 to 24 running above 12 percent, large numbers of households continue to dole out cash to children no longer in school, covering rent, cell phones, cars, and vacations.

A July 2014 survey by American Consumer Credit Counseling, a Boston nonprofit, found that a higher proportion of U.S. households (1 in 3) provide financial assistance to adult children than support for elderly parents (1 in 5). “This is putting a huge wrench into retirement savings,” says Pamela Villarreal, a senior fellow with the National Center for Policy Analysis in Dallas. “The more boomers put out for adult kids, the less they can put aside for themselves, which is scary as they live longer and need savings to last them into their 80s and 90s.”

More than a third of adult millennials receive regular financial support from their parents, and 1 in 5 still live at home and don’t pay rent or expenses, according to a November 2014 survey by Bank of America. It isn’t just the unemployed or the low-paid who are needy. The poll, which had 1,000 respondents between the ages of 18 and 34, found that among those earning more than $75,000 a year, 25 percent had their parents pay for groceries at some point and 21 percent got money for clothing.

If parents have extra money left over each month, they should be maxing out their contributions to 401(k) plans or paying down mortgages or other debt, not subsidizing their kids, financial advisers say. “You can’t take out a loan for retirement,” says John Sweeney, executive vice president for retirement and investing strategies at Fidelity Investments. “So the less well-off you are, the more you have to say to grown children, ‘I don’t have it to give.’ ”

Gillian Anderson, head of Anderson Wealth Management in Westport, Conn., says so many of her clients are helping their 20- and 30-something kids financially that she advises other parents who consult her to budget for the possibility that they may have to do the same. “It runs the gamut from giving regular allowances because millennials often aren’t earning enough to cover rent and food, to help with legal bills if a child is going through a divorce, to occasional payments for a coat or plane ticket,” she says.

Whatever the reason, this prolonged support is squeezing even affluent boomers. The executive director of a nonprofit in Seattle gave her daughter and son-in-law a total of $12,000 in 2014 to pay for child care, home repairs, and other bills—and plans to give at least as much this year. The 66-year-old woman earns $230,000 a year, while the couple are working professionals in their 30s with a combined annual income of about $115,000. The mother, who asked not to be identified because she didn’t want friends and work colleagues to know about her situation, says she’d like to retire, but her financial planner has warned her that the $2.5 million she’s set aside will run out by her early 80’s at her current rate of spending.

Fidelity’s Sweeney says it’s a bad idea even for affluent parents, to fund their adult kids. “Giving them tens of thousands of dollars a year for apartments, cars, and restaurant meals sends the message that you’ll keep paying for a lifestyle they can’t afford on their own—and you probably can’t or don’t want to fund forever,” he says. “Better to teach them to burn less than they earn, and save all you need for a long old age.”

 

Article from Business Week Magazine 9 – 15 March 2015 by Carol Hymowitz