It's safe to say young Americans have entered adulthood at a precarious time, facing one "unprecedented" economic event after another, as well as record-high inflation, recession fears and ballooning housing costs. It's no wonder that parents want to do their best to help their adult children during this complex transition — sometimes, at the expense of their own financial well-being.
A new Bankrate report has found that seven in 10 (68%) parents with children age 18 or older have made, or are currently making, a financial sacrifice to help their adult kids. And while it's understandable to want to support your kids, especially during such an anxious economic period, it might not always be the smartest move.
Below, CNBC Select breaks down the report's findings and offers advice on how to help your adult children without jeopardizing your own financial security.
What parents sacrifice to help their adult children
The Bankrate survey has found that to help their adult children, parents sacrificed their emergency savings, retirement funds and debt payoff, as well as other financial milestones. Further, nearly a third of parents who helped their adult children at their own expense (31%) admitted that they had sacrificed "significantly".
Here are a few other worrying numbers from the report:
- 51% of respondents said they sacrificed their emergency savings, and 20% felt the sacrifice was significant
- 49% of surveyed parents said they sacrificed their debt payoff goals, and 18% said they sacrificed significantly
- 43% of parents said helping their adult children had a negative effect on their retirement savings and 18% said the impact was significant
- 55% of survey respondents also sacrificed reaching some other financial milestone (16% significantly)
Further, the report findings show that baby boomer parents were less likely than Gen-X parents to have made a financial sacrifice to support their adult kids. For instance, 50% of Gen-X parents compromised their retirement funds to help their children, while only 38% of baby boomer parents did the same. Fifty-five percent of Gen-X parents chose to help their adult kids over paying off debt, which was true for just 44% of baby boomer parents.
It appears that baby boomers have different views than younger generations on pushing kids to pay their own way — and they seem to disagree with the kids themselves.
Boomers and Gen Zers disagree on when it's time to start paying your own way
Most survey respondents believe that the ages of 20 through 23 signal the period for young people to become self-sufficient enough to pay expenses from cell phone and credit card bills to housing costs. Gen-Z and baby boomers, however, can't find the common ground on when exactly parents should stop funding certain expenses.
For example:
- Gen Z respondents believe that the average age people should start paying their own credit card bills is 21, while baby boomers say it's 19.
- Gen Z respondents think you should be responsible for paying your car insurance starting at age 22, while baby boomers believe 19 is the average age young people should begin paying their auto insurance premiums.
- Finally, according to Gen Z, the average age to start paying for housing is 23, while baby boomers believe you should be doing that when you turn 21.
"Some of this probably relates to the differences in [the] cost of living now versus when boomers were in their 20s," says Ted Rossman, senior industry analyst at Bankrate. "There's probably something of a self-serving element, too. As in, Gen Zers might be saying, 'Can I take out another year or two on the family cell phone plan? Or can Mom and Dad pay for my car insurance just a little bit longer?..' In all seriousness, I do empathize with the high costs facing young adults who are just starting out."
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How to help your adult children without putting your financial health at risk
There's nothing wrong with wanting the best for your children and helping them out in tough times. But the help you provide shouldn't place your own financial well-being in jeopardy.
Not having enough in your emergency fund or retirement savings as a result of helping your kids can easily backfire. If paying rent for your adult child means sabotaging a comfortable retirement, it's likely not the wisest idea. By withdrawing from your 401(k) early you'll lose out on compound interest and have to pay a 10% penalty, plus income tax, on whatever funds you take out. Plus, if you don't have enough money to sustain yourself in retirement, your kids could be on the hook to help you out financially.
If helping your child stay current on their student loan payments means you might not be able to cover an unexpected expense, you most likely shouldn't touch your savings. Not having an emergency fund and having to potentially take on high-interest debt to cover an urgent cost can hurt your finances much more in the long run.
You also don't want to undermine your debt repayment goals if you have high-interest debt, such as on credit cards. The higher you let your balances get, the quicker interest charges grow — and the harder it can become to get rid of debt.
"Sometimes financial assistance goes too far," Rossman says. "Make sure the assistance works within your budget and be clear about the parameters. Helping out shouldn't be seen as a blank check or an indefinite handout. It might help to attach a specific dollar amount or timeframe."
It's important to set expectations and give your children a timeframe for when they'll need to be financially independent. For instance, you can let your 20-year-old know that you only plan on paying their cell phone bill until they turn 22. This way, your child will have adequate time to prepare for when they'll need to cover this expense on their own.
Besides setting boundaries and expectations, look for ways to support your child without giving them money. For example, if they're struggling with housing costs, you can invite them to stay with you. "You could even set some or all of the money aside as a "freedom fund" to help with a security deposit on a future apartment or the down payment on a future home," Rossman suggests.
Finally, in dire circumstances when you need to borrow to help your kids, look for more affordable financial products. For instance, you can look into a 0% APR credit card that charges no interest for a promotional period (usually longer than a year). Here are some of our favorite zero-interest cards:
The Wells Fargo Reflect® Card can help you save on interest charges thanks to its extra generous intro-APR offer on purchases and qualifying balance transfers.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply Now to take advantage of this offer and learn more about product features, terms and conditions.
- 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 17.74%, 24.24%, or 28.49% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
- $0 annual fee.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
- Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.
Balance transfer fee
5%, min: $5
Foreign transaction fee
3%
The Citi® Diamond Preferred® Card is one of the best balance transfer credit cards and also has a generous intro APR offer.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- 0% Intro APR on balance transfers for 21 months and on purchases for 12 months from date of account opening. After that the variable APR will be 16.74% - 27.49%, based on your creditworthiness. Balance transfers must be completed within 4 months of account opening.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
- No Annual Fee - our low intro rates and all the benefits don't come with a yearly charge.
- Buy now and pay later. Split your payment for eligible purchases of $75 or more into a fixed payment with Citi® Flex Pay.
- Get free access to your FICO® Score online.
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Foreign transaction fee
3%
The Citi Double Cash® Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure. Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
- Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, earn 5% total cash back on hotel, car rentals and attractions booked with Citi Travel.
- Balance Transfer Only Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 18.49% - 28.74%, based on your creditworthiness.
- Balance Transfers do not earn cash back. Intro APR does not apply to purchases.
- If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. A balance transfer fee of 5% of each transfer ($5 minimum) applies if completed after 4 months of account opening.
Foreign transaction fee
3%
Alternatively, you can take out a personal loan. CNBC Select recommends looking into the following lenders:
We like that LightStream offers competitive APRs, no late or origination fees and long loan term options. But you can't prequalify and the loan minimum may be too high if you only need to borrow a small amount.
Discover Personal Loans
Annual Percentage Rate (APR)
7.99% to 24.99%
Loan purpose
Debt consolidation, home improvement, wedding or vacation
Loan amounts
$2,500 to $40,000
Terms
36, 48, 60, 72 and 84 months
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply.
In either case, though, make sure to come up with a repayment plan that won't strain your budget and shop around for the lowest interest rates.
Bottom line
As uncertain economic times and the cost of living continues to rise, it's no wonder so many parents do their best to offer financial help to their adult kids. While it may be justified in some cases, it's crucial not to sabotage your financial health when supporting your children.
"It's like the airlines say: Put your oxygen mask on before helping others," Rossman says. "If a parent offers too much financial assistance, that could set them back and maybe even lead to asking their adult children for money down the line. There's something potentially awkward and circular about that.
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