The New Parent Trap

More boomers help adult kids out financially.

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Keith Hewson, a 29-year-old airline pilot, hadn't planned to live with his in-laws after he got married. But he quickly realized that sharing a three-bedroom Houston townhouse with his wife's parents, who offered to let them live there rent free, would allow him and his wife, Katy, to pay off their student loans and credit card debt and save for a house of their own.

 

"Everything we were putting into [rent] is now paying off bills and going toward savings. That was a huge selling point," Hewson says. He estimates the arrangement saves him and his wife, a social worker, around $1,500 a month.

Hewson is part of a generation that is benefiting from the generosity of its parents, who are approaching retirement or already retired. Almost 4 in 10 adults age 60 or older give money to their adult children, while only about 12 percent get financial help from their kids, according to the Pew Research Center.

Trends. High housing prices, the rising cost of higher education, and the relative affluence of the older generation are among the factors driving the trend, which experts expect to become more pronounced as more baby boomers enter their golden years over the next two decades.

"As a historian, I can tell you no older generation in history has ever spent so many resources on grown kids," says Stephanie Coontz, director of research for the Council on Contemporary Families.

Indeed, the annual cost of a public four-year college has more than doubled over the past 20 years (as measured in constant dollars), and housing prices over the same period have more than tripled on average (while the value of a dollar has less than doubled). That has provided more wealth to boomer homeowners while at the same time making it harder for their kids to buy first homes.

"It's just more and more important for kids to get this kind of help," Coontz says, noting that families unable to give cash often provide non-monetary help, such as offering to baby-sit their grandchildren or allowing adult children to move in with them.

William LeFavor, 24, a financial planner in Wellesley, Mass., lives rent free at his parents' home 50 miles away, which has allowed him to save about $25,000 for a down payment on a house. In addition to providing housing, his parents pay for his food, dry cleaning, and other living expenses. (He also enjoys his mother's cooking.) Without his parents' help, LeFavor estimates that rent would eat up at least half of his roughly $27,000 annual take-home pay, and after food and a social life, "you're just going into debt."

But depending on retired parents can also create family tension. "It's embarrassing," says Sharon Davey, a single mother of two young daughters in Merrimack, N.H. Since her divorce about four years ago, she has been relying on her mother's help. "It makes me feel like a little kid, and I'm 46 years old.... Obviously, I'm extremely thankful and appreciate that she helped me when I don't know what I would have done, but it's a hard pill to swallow."

Her mother, Lucy Olson, 71, has paid for Davey's mortgage, car note, and groceries. Olson, who lives primarily off her Social Security income of about $1,100 per month, says that while she wants to help her daughter, who lost her job in July, she doesn't know how much longer she can keep doing so. She has already cut back on having her hair cut and colored and buying things for herself.

Trish Lynch, a certified credit counselor for ClearPoint Financial Solutions, says she often works with parents who overextend themselves financially when a son or daughter is in need. "Parents feel like it's their responsibility to keep on helping an adult child financially," Lynch says. "Not only does it make it financially unstable for the parent, but it creates poor habits for the adult child."

Self-preservation. When considering making loans or gifts, experts warn that parents should first protect themselves from financial distress. "It's fairly common that [we] see clients who want to start making gifts, and then, as they look into it further, they realize maybe they're not in a position to start making them," says Marianne Kayan, an estate-planning attorney in Bethesda, Md.