Financial Journey Of Modern Parenting: Joy, Complexity And Sacrifice

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Staff report

Parents in the U.S. now spend $500 billion annually on their 18- to 34-year-old adult children – twice the amount they contribute each year to their retirement accounts, according to a new Merrill Lynch study conducted in partnership with Age Wave. The study also found that nearly two-thirds of parents report having sacrificed their own financial security for the sake of their children. Even with the financial challenges and sacrifices, over 90 percent of parents say that parenting is the most rewarding aspect of their lives.

We sat down with Rachel Barzilay, CAP®, CFP®, CRPC®, Managing Director, Wealth Management Advisor and Senior Portfolio Manager with Merrill Lynch Wealth Management in Boca Raton, to discuss the study and its findings.

Why was this study conducted?

Of the 173 million parents in the United States today, 76 million care for children under 18. While 89 percent of all parents agree there is “no normal” when it comes to parenting, there are common patterns as the journey unfolds. “The Financial Journey of Modern Parenting: Joy, Complexity and Sacrifice” takes an in-depth look at the financial and emotional journey of contemporary parenting. This study marks the third in a multi-year research series from Merrill Lynch and Age Wave that examines five distinct life stages: early adulthood, parenting, caregiving, widowhood, and end of life/legacy.

The study surveyed more than 2,500 respondents in the United States who are over 18 and a parent to one or more children – biological, adopted or step – of any age.

What would you say is the key take-away from this study?

Parents of infants and toddlers say they act primarily as nurturers and protectors, and the majority (52 percent) say this is the most rewarding stage of parenting. The most challenging phase is with middle to high school-age children, when parents help their kids move towards independence by playing a variety of roles, including teacher, cheerleader and ATM. As children become independent adults, parents become advisors and friends, and often financial supporters. The role is ever-changing, which is one of the reasons financial advice over the course of a child’s lifetime can help protect parents from financial mistakes.

It is also worth noting that today, 73 percent of people factor finances into their decision to become a parent. In contrast, in the 1980s, only one-third of people took finances into consideration when starting a family.  

What is the hidden economy of ongoing support for adult children?

Parenting is truly a lifelong financial commitment. The greatest challenge parents face with adult children is maintaining strong relationships with their children – and there are often financial ramifications of this desire to stay connected. Each year, parents spend twice as much on adult children than they contribute to their retirement accounts, $500 billion and $250 billion respectively. Thirty-one percent of early adults live with their parents, a figure that is 50 percent higher than in 1960, and higher than the percentage who live with a spouse today. Seventy-nine percent of parents to adults 18-34 say they’re giving at least some financial support to their children.

What can parents do to prepare?

The costs of parenting are surprising and steep. The average cost of raising a child to age 18 is now estimated to be over $230,000. Nine in 10 parents are surprised by how much money they spent after becoming a parent, and nearly two-thirds report encountering financial difficulties associated with parenting. It is also important for parents to remember that financial support doesn’t usually stop at age 18. This study looked at the cost of parenting over a child’s lifetime – not just while they are under their parent’s roof.

Parents need to pay close attention to financial matters and plan from the very start of the parenting journey – and then continue those mindful habits even after their children have left their home. Above all, it’s important to take a holistic approach to financial planning – one that guarantees financial security for both your child and yourself.

Parenting is among the most profoundly fulfilling and constantly challenging shared human experiences. For most, it is a life-changing, identity-shifting, unpredictable and expensive journey. The financial journey of parenting can be complex and challenging. Parents who traverse the journey well-informed, with eyes wide open, anticipating the practical and financial twists and turns, can make the experience even more rewarding for themselves and their children.