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Moochers no more, millennials are helping out their parents

Millennials have a reputation for being the Peter Pan generation—unable to grow up, even though the oldest are in their mid-30s. Coming of age during an economic downturn, many millennials have struggled to start their careers. As a result, they've delayed many of the traditional markers of adulthood, such as buying a home, getting married and having children.

While the media might paint them as lazy and entitled, many millennials, or Gen Yers, defy the "moocher" stereotype. And if they do live at home with Mom and Dad, it might be for different reasons than it appears.

Millennials mother daughter
Philip Bigard | Getty Images

As a certified financial planner specializing in millennials, I've noted firsthand what my clients are struggling with as they work on creating their own financial independence while also handling concerns about the financial situation of their parents.

The family-oriented generation

A recent TD Ameritrade study found that about 20 percent of Gen Y is providing financial support to parents. Baby boomers are currently sandwiched between caring for aging parents while still raising their own children.

Meanwhile, many millennials don't yet have children of their own (only 40 percent of millennials over the age of 25 have children). This puts them in the unique position of being able to allocate more of their money toward helping their parents. Many live with their parents for a longer time—not merely to save money but to pay for part of the mortgage or otherwise help with the costs of maintaining the family home.

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Millennials help their parents financially in other ways, too. They give monetary gifts, buy their parents homes or pay for assisted living and pay back the student loans their parents took out for them. On average, Americans of all generations—not just Gen Y—spend $12,000 a year helping aging parents.

Much as some baby boomer parents have delayed their retirements to help their children financially, some millennials, too, have put off their life goals to assist their parents. It's a cycle that, while generous, has been preventing both generations from adequately saving for retirement.

Dreams deferred

A study conducted by the Schwartz Center for Economic Policy and Analysis at The New School found that about a third of workers ages 55 to 64 are at risk of spending their retirement at or near the poverty line. With fewer companies offering employer-sponsored retirement accounts and fewer workers participating in them, the situation won't improve in 20 years, when the oldest millennials will be in their mid-50s.

I've seen many millennials move back in with their parents in order to help with the monthly mortgage payment. While from the outside it may appear that they are just mooching, they might actually be paying rent to help their parents avoid foreclosure or a short sale.

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Sometimes it can be a win-win for both parties. If the cost of living with family is lower than the cost of paying rent, then millennials are able to save for other financial goals while helping their parents stay on top of mortgage payments.

I've even had a client buy a home for his parents instead of buying a home for his own family. He and his spouse had been spending $1,500 a month helping his parents, so they decided to buy a house instead and funnel that money toward monthly mortgage payments that were going toward an asset. My client just finished paying off his student loans from his MBA and now will start saving for a down payment on his own home.

Helping family, helping yourself

It's always nice to know you can lean on your family and then return the favor by helping them out when they need it. As the 16th-century poet John Donne wrote, "No man is an island."

But millennials have the benefit of time to save up for a home, a wedding, the college educations of their future children and retirement. So what can today's 20- and 30-somethings do to prepare for their future, while possibly also providing assistance to their parents?

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For starters, pay yourself first. Contribute to a 401(k) plan or Roth individual retirement account to build your own retirement savings. Figure out a plan for your student loans. If you have credit card debt, pay it off ASAP. The high cost of interest will take a toll on your financial goals.

Set up a budget so you know where your money is going. If you have money left at the end of the month to help your parents, you may choose to send it their way. But remember, it's important to build up your own financial security before helping family.

When you are your parents' retirement plan

More often than not, my young clients express concern over their parents' retirement plan. They know that their parents haven't saved enough for retirement, and they worry that someday they'll have to help them out.

In other situations, they worry about their parents' health and rising health-care costs. Oftentimes, my clients are in the best financial situation among their siblings and are concerned that the financial burden of their parents' retirement will fall to them alone.

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I've even seen situations where parents have said things like, "If anything happens to your father, you know where I'm moving" to their children.

If this sounds like it could happen to you, I often recommend having a conversation with your parents about their current financial situation to get a sense of how they've planned for retirement.

"I often recommend setting up a separate investment account and starting to set aside a monthly amount that you'd be comfortable gifting to your parents."

The more aware everyone is of the reality of the situation, the better we can plan for the future. For example, if high health-care costs later in life are your biggest concern, I've seen a few clients buy long-term care insurance for their parents so that they won't be saddled with the high nursing-home costs.

Other times, I've seen clients buy homes that have a separate "mother-in-law apartment" attached. They might rent it out for now, but know that a parent may move in later on down the road.

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So what do you do if you're a millennial who suspects you might have to help your parents financially in the future? I often recommend setting up a separate investment account and starting to set aside a monthly amount that you'd be comfortable gifting to your parents.

This way, you have a lump sum you can tap into if they really need it, and you're already allocating a set dollar amount per month. If you need to defer that money to your parents at a later date, you're already used to that money being allocated away from your monthly budget.

The money in a brokerage account is really flexible, and if your parents don't need it, then you can then use it for your own retirement or to help pay for your children's college. But at least you have the flexibility of helping your parents financially if they ever really need it.

—By Sophia Bera, founder of Gen Y Planning