Why are 61% of parents still giving financial help to their adult kids? It's the economy, stupid.

By Venessa Wong

'Early-career recessions can have permanent effects,' one economist tells MarketWatch

A majority of parents are helping their adult children financially, particularly with housing expenses, according to a new survey - a trend that experts say reflects today's soaring cost of living and wealth inequality between generations.

Some 61% of parents with adult children say they've made financial sacrifices or are currently doing so in order to help their kids, according to Bankrate. Among respondents age 23 and older who have received or currently receive financial support, 37% said they'd gotten help with rent payments or were allowed to live with reduced or free rent, while 17% reported receiving assistance purchasing their first home.

Another 48% said they received ongoing support for everyday expenses such as groceries and utilities, and 21% said they'd had help paying down or paying off debt.

This is a long-term trend that shows no signs of abating, Bankrate chief financial analyst Greg McBride told MarketWatch. Millennials and Gen Z-ers (42%) reported higher rates than Gen X-ers (22%) and baby boomers (10%) of having ever received assistance from their parents, Bankrate found.

"When you look at housing-affordability challenges that are persisting, it doesn't herald a change in this trend anytime soon," McBride said.

A buyer looking at a median-priced $397,000 home with a 30-year mortgage at 7.09% would pay roughly $2,711 per month for principal, interest, taxes and insurance after putting 20% down, according to Redfin. To afford that on a monthly basis, a prospective buyer would need to make an annual salary of $108,440. In contrast, real median income in the U.S. in 2022 was $74,850, while median family income was $92,646, according to the Census Bureau.

A January report from the Pew Research Center also found that the top two areas in which parents were helping their adult children were housing expenses like groceries and utilities (28%) and bills such as their cellphone or streaming-service subscriptions (25%). About 17% received assistance for rent or a down payment, and 15% got help with medical expenses.

"One of the largest wealth sources for millennials and Gen Z are wealth transfers from their parents or grandparents," said Mingli Zhong, an economist and senior research associate at Urban Institute. She added that white families are nearly four times as likely to receive an inheritance as Black families, and about five times as likely as Hispanic families, a gap has largely persisted since 1989.

Higher debt levels and delinquency rates

The high cost of living is one factor driving young adults to seek financial help from their parents, McBride said, but "part of it is also the income side."

"If you're in an industry that's fallen on harder times, it may not be a function of your lifestyle as much as it's just the income squeeze," he said.

One in five young millennial and Gen Z adults in 2020 reported they or their spouse or partner experienced a layoff at the start of the pandemic, according to a survey by the Urban Institute. "This is concerning," said Zhong. "Early-career recessions can have permanent effects."

Salaries for college graduates have decreased by 10.6% over the last four decades after accounting for inflation, a 2023 report by Self Financial found.

Young adults are not oblivious to their financial challenges. Around 30% of Gen Z-ers and 32% of millennials say they feel financially insecure, and over half report living paycheck to paycheck, according to a Deloitte study released this year. Gen Z also has higher debt levels and delinquency rates compared with millennials of the same age, a recent TransUnion study found.

"It's no surprise that in this economic climate, one in which the cost of living is significantly higher relative to a decade ago, younger consumers are increasingly turning to credit products to bridge their financial needs," Jason Laky, executive vice president and head of financial services at TransUnion, said in a statement.

Gen Z "is likely commanding a lower salary at an earlier point in their career," Laky added. As long as inflation and the cost of goods remain elevated, he said, balances on credit cards, personal loans and auto loans are likely to grow.

High-income and Gen X parents are most likely to help their adult children

Today, Gen X parents (69%) are more likely than baby boomer parents (56%) to have made a financial sacrifice to help their adult children, Bankrate found.

Part of this may be a result of younger adults with Gen X parents being earlier in their careers and earning less than they need to get by, and being more likely to need assistance. There's "this broad age range from 18 to 34," Pew research associate Rachel Minkin told MarketWatch.

The average gross income of people younger than 25 was $48,000 in 2022, and their average expenses were about $46,000, according to the Bureau of Labor Statistics. Those ages 25 to 34 earned nearly $90,000 on average, with expenses of $68,000.

While only 16% of Gen Z adults ages 18 to 24 were completely financially independent, that share was 44% for those ages 25 to 29, Pew found. For young millennials ages 30 to 34, the rate was 67%.

Millennials and Gen Z-ers (42%) reported higher rates than Gen X-ers (22%) or baby boomers (10%) of having ever received assistance from their parents, Bankrate found.

"One of the largest wealth sources for millennials and Gen Z are wealth transfers from their parents or grandparents." Mingli Zhong, Urban Institute

This might be a product of the financial burdens common for each generation as they become adults. "Young adults today are enjoying higher wages than young adults back in 1993," said Pew's Minkin. That's roughly the time around which their parents became young adults. "But we also see differences in terms of student-loan and mortgage debt. Today's young adults are much more likely to have outstanding student loans than young adults in the early '90s."

Pew's research also found that providing financial support to adult children is more likely to be a choice made by upper-income parents (65%) compared with middle-income (61%) or lower-income (52%) parents. It's an easier decision for them: 22% of parents with high incomes said doing this hurt their own finances, compared with 37% of middle-income parents and 49% of parents with lower incomes.

Some parents are cutting the financial cord on their children due to the impacts on their own finances and ability to save or retire.

"We do see large disparities in wealth, given how the economy has been working for the past few decades," said Zhong of the Urban Institute. "We've seen baby boomers accumulate lots of wealth, and that's going to be passed down to some families, but others will have to work on their own feet."

Are you a parent or kid that gives or receives financial help? MarketWatch would like to hear from you about your experiences. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more.

-Venessa Wong

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06-01-24 0756ET

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