Every day, about 10,000 baby boomers reach the traditional retirement age of 65. That's long past the age of paying allowance. But whatever you call it, a number of older parents are paying it --- and paying the price.
A record total of 21.6 million members of the millennial generation were living at their parents' homes in 2012, according to a Pew Research Center analysis of U.S. Census Bureau data. That's 36% of the country's young adults, ages 18 to 31.
It's not just housing that older parents are providing. A May 2011 survey commissioned by the National Endowment for Financial Education found that 59% of U.S. parents of children aged 18 to 39 are providing or have provided financial support of some sort for their adult children after they're out of school. The trend may be even more notable among affluent boomers. In a study conducted in late 2011 by Ameriprise Financial, 93% of boomers with at least $100,000 in investable assets said they have provided financial support to their adult children, including housing, college tuition or loans, and help with buying a car. Boomer parents also are helping pay car insurance, rent or utility payments, home down payments, mortgage payments and health insurance, the study says.
"A new generation is graduating college and they're nominally adults but they're functioning as dependent children," says Darryl Dahlheimer, program director at LSS Financial Counseling Service in Minneapolis.
What's more concerning: 26% of the adults surveyed by the National Endowment for Financial Education reported going into debt to support their adult children. Seven percent delayed retirement to help their adult children.
Credit counselors have seen the evidence firsthand. One retired woman who sought help at ClearPoint Credit Counseling Solutions took out five payday loans to help her unemployed son. "He came to her even though Social Security is her only source of income," says ClearPoint spokesman Bruce McClary. "He appealed to her emotions to get her to borrow the money. However, he was not helping her repay the debt. She was struggling to keep up and not able to get out of the cycle."
Counselors helped her set up a self-managed plan to take care of the loans and encouraged her not to take out any more loans. They also suggested she refer her son for counseling.
For some parents, new loans aren't the problem. Instead they're prolonging existing debts, a practice Dahlheimer calls 'back-door debting.' "Maybe they don't pay off their credit cards," he says. "Maybe they get a five-year car loan instead of two."
Sometimes that help continues until the adult children are nearly old enough to retire, says Jayne Di Vincenzo, president of Lions Bridge Financial in Newport News, Va. "I have seen 40-, 50- and 60-year-olds still relying on help from well-heeled parents in their 70s, 80s and early 90s," Di Vincenzo says. "You can tell it's been a lifelong thing and it's become an expectation."
At best, ongoing financial assistance robs young adults of independence and fosters a sense of entitlement, McClary says. At worst, it can lead to financial abuse of older adults. Offspring may pressure their parents into adding them to bank and credit card accounts and then take advantage of this access, he says.
Numerous factors contribute. Dahlheimer cites fewer jobs available for young people, the natural desire of parents for their children to have an easier life, and a tendency of boomer parents to be friends with and hang on to their children. "They feel financial assistance is an expression of love for their children," McClary says.
But, says McClary, M-O-N-E-Y doesn't spell love. "There are a number of other ways that are more meaningful and longer lasting than financial help to express your love for your children," he says. "The key question is, 'How can I express love by helping my child grow up?'"
Easing kids out of the nest
Here are some tips on how to prevent your kids from depending on you long after they should be on their own:
- Define for your kids when it's appropriate to ask for help. A medical crisis? Job loss? Car trouble? Foreclosure looming?
- Let them know how -- loan, gift, moving in with you -- you will assist them and how often. One strike and you're out? Twice and done?
- Tell them what is expected while you're helping. This might include giving you access to their budget and spending information, as well as status reports on looking for a first or second job.
- Outline the terms of repayment for any loans, including payoff periods and any interest you plan to charge.
One financial string you may not want to cut: Keeping your kids on your health insurance up to age 26, as allowed under the Affordable Care Act, might be a good idea. It provides parents peace of mind and is different from depleting assets to bail out adult children, Di Vincenzo notes.
Weaning them off the dole
Parents who have already become the Bank of Mom and Dad should consider these steps to get children on their own feet:
- Have a frank discussion to assess whether the children still need financial help, McClary says. If they no longer need help, pull the plug. If they still need help and the parents can afford to continue to help, outline strict rules about repayment and disclosure. For example, one parent agreed to pay a debt management plan if a daughter attended debt counseling and Gamblers Anonymous.
- Parents who can no longer afford financial help or no longer want to help should offer nonfinancial support such as helping children network, apply for jobs or look for affordable housing, says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.
- Insist on full disclosure, including checking and credit card statements, Di Vincenzo says. "Are they spending money on extravagant trips?" she says. "Does their kid really need a new PlayStation and a new bike every Christmas? They have to show some responsibility in their finances."
- Come up with a deadline when help will end. "Tell your child, 'After Jan. 1, my financial adviser has told me I can't afford to spend more than my living expenses or I'll be out of money in five years.'" Di Vincenzo says.
'Reality is the best teacher'
Diane Summerville of Greensboro, N.C., provides a good example of how to set boundaries. She gave her oldest son -- who graduated from college in 2012 and had a job -- until Oct. 15, 2012 to move out. In the meantime, she charged him rent. Summerville says she wouldn't have dreamed of going into debt "to support an adult who is as capable as I am of earning a living."
Setting a solid date is key, Summerville says. "He had to believe his things would be sitting by the curb on that day," she says. "And he did believe it." Her son moved out on the appointed date.
Summerville's second son graduated high school in 2012, but wasn't pursuing higher education or a job. She told him that to stay, he either needed to be enrolled in school and working part time or working full time. If he didn't meet those conditions, he had to be out of the house by Feb. 15 -- and he knew she'd make it stick, based on what happened with his brother. Summerville told him he could move back in once he met those conditions, but if he slipped again, he'd be asked to leave with no chance of coming back. "I knew there would be a chance he would be out in the cold," she says. "But I firmly believed it was for his long-term benefit."
Son No. 2 moved out on the appointed date and eventually got his act together. He has a job as a waiter, is training to become a firefighter and has returned home where he's also helping with home maintenance.
"I'm a strong believer in natural consequences and reality being the best teacher," Summerville says.
See related: Tips for getting grown children out of the nest, Money disorders: Financial dependency means losing self-worth, Money disorders: Financial enabling is help that hurts, Jobless adult children rack up big debt on mom's cards