Supporting adult children could cost parents over $200,000: US Study – ZoomerU

Supporting adult children could cost parents over $200,000: US Study

adult-children

A TD Canada survey in January, 2017 found that 62% of Canadian Baby Boomers couldn’t save enough for retirement because they were still supporting adult children. But is it possible to put a dollar value on what that support is costing?

A new US study shows that support of adult children could cost their parents over $200,000 that could have gone toward the parents’ retirement.

The data is based on a study, conducted by Harris Poll on behalf of NerdWallet. The study found that 80% of parents of adult children were still covering, or had covered, some of those children’s expenses after they turned 18.

The study went on to calculate the impact on the parents’ own retirement savings, and concluded that it could be as high as $227,000.

A big chunk of that was accounted for by college tuition. More than a quarter of parents of children 18 or older were covering college tuition or student loans, with an average exposure of $21,000. Considering that average loan payoffs take 10 years, this could represent a hit of up to $80,000 in retirement savings.

Parents were also covering all or part of their children’s expenses for clothing (32%), entertainment (20%), and car loans (10%). Also, 10% were providing their adult children with an allowance.

You can get more details on the study here.

It’s true that costs and spending patterns — particularly for post-secondary education — are different in the USA, compared to Canada, but the study reinforces the broad trends already observed in the Canadian market. There are some important implications for marketers:

  1. The study demonstrates — yet again — that the “older” generations are not just greedily seizing undeserved pension, medical and other benefits at the expense of the younger generations. They are responding to challenges in the marketplace (jobs, housing) and stepping up to fund their adult children at the expense of their own retirement plans.
  2. This phenomenon is another powerful reason why they are not retiring “on schedule” at 65. It’s not the only reason, of course. Equally powerful is the “reinvention of aging” and the desire, particularly by the Baby Boomer cohort (age 52 to 72) to keep working, regardless of financial need, for reasons of personal satisfaction. But there’s no doubt that the high cost of supporting adult childrenĀ is a significant factor, too.
  3. This phenomenon also demonstrates the limitations of looking at marketing segmentation based largely on age, particularly when it comes to younger age groups. The classical “lifestage” model that has dominated media buying assumes certain behaviours (and spending capability) within certain ages — 18-24, 25-34, etc. But at the younger range, those groups no longer have the economic clout they did in previous generations when the “lifestage” model was constructed. If the parents are still footing the bill, the parents are undoubtedly influencing the purchasing decisions. Marketers should begin to factor this into their assessment of the spending potential of the younger age groups.

Today's Factoid

1,390,000

Number of Zoomers investors who have personally traded online over the past 6 months. That's more than all other age groups combined. In fact, Zoomers account for almost 60% (59.5%) of all Canadians who have traded or managed investments online over the past 6 months.   Source: Vividata Spring 2018.