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Sunday, April 30, 2006

Trend: Bankrupt!: Bank of Mom+Dad

NY Times recently published an article on the growing financial dependency of young adults and college grads still sucking on the financial teet of Moms+Pops. The article offers some interesting stats submitted by Bob Schoeni, an asociate professor of economics and public policy at the University of Michigan, and author of the study "On the Frontier of Adulthood".

Middle income parents who earn less than $72,600 a year can expect to spend $190,980 on kids through age 17, according to 2005 government statistics. AND parents can PLAN ON CONTINUING TO PAY ALMOST 25 PERCENT OF THAT AMOUNT AGAIN OVER THE NEXT 17 YEARS, OR $42,280 IN 2005 DOLLARS. THIS SUM INCLUDES HIGHER EDUCATION, BUT ALSO MUCH MORE.

•Parents pay $2,323 a year to help support children 25 and 26 years old, and $1,556 annually for offspring aged 33 and 34. (All amounts are in 2001 dollars and reflect support to children living both independently and at home).
•Youth who receive financial help from parents, whether living with them or not, receive, on average, $3,400 a year. Those who are living with their parents receive between $4,500 and $5,000 a year.
•Since the 1970s, there has been a 50% increase in the number of young adults in their 20s living at home, which alone has led to a 13% increase in parental shared housing costs.
•Children in the top one-fourth of income categories receive at least 70% more in material assistance than do children in the bottom one-fourth. This occurs even though higher-income youth are only 10–15% more likely to attend college than low-income youth. Both low-income and high-income parents spend almost identical amounts of time helping their children, at 3,864 and 3,869 hours, per year, respectively.
•Although slightly more than half of men and nearly two-thirds of women had left their parents’ home by age 22, 16% of both returned home at some point before age 35.

SOURCE: On the Frontier of Adulthood: Theory, Research, and Public Policy, edited by Richard Settersten, Jr., Frank Furstenberg, Jr., and Ruben Rumbaut. >

But here comes the real catch - THE BANK OF MOM+DAD IS RUNNING OUT!

Stagnating real wages, rising expenses, increasing debts, Boomers fast-approaching retirement...More parents are increasingly putting the kid's financial debts back onto the kids - and enjoying what little they have left themselves and not not feeling particularly guilty about it, either! Financial aid officers testify to seeing these rises in parental push-back. Many parents are worried about affording retirement and say their fixed costs eat up their income. Others have not saved enough, or are helping pay for care for their own aging parents.

Consider some quotes from another article in the NY Times:

"What I've really seen in the last 10 years is a generational shifting of the responsibility" to pay for college, said Ellen Frishberg, director of student financial services at Johns Hopkins University in Baltimore. "Our parents helped us pay for school. These parents are not as willing to help their children pay for school."

There are no data directly measuring shifts in who bears the cost of college. But financial aid officers at institutions from Johns Hopkins to the University of California, Los Angeles, to Carleton College say they have observed a shift in recent years.

Financial aid officers also say some middle- and upper-middle class families may not have saved enough in part because they thought, incorrectly, that financial aid would compensate. But financial aid calculations focus on assets (other than a home) and past, present and future income, and while such calculations allow for living expenses, the assumed lifestyle may be more austere than what many families have enjoyed or are willing to accept.

Consider these stats:

•The nation’s savings rate was a negative 0.5% in February. Personal savings average 2.3% of disposable income. These numbers have been negative or at zero for the last 11 months.
(Retirement Confidence Survey 2006, Employee Benefit Research Institute (EBRI), American Savings Education Council (ASEC), and Mathew Greenwald & Associates)
•97% of US adults with children under 18 expect their oldest child to attend college, and nearly 79% expect to pay some or all of their child’s college education…However 25% of parents who said they are expecting to pay for kid’s college education say they have actually saved less than $5,000 and 32% haven’t saved anything specifically for this purpose.
(Wall Street Journal/Harris Interactive Personal Finance Poll 2006)
•The percentage of respondents who are saving for retirement has increased from 57% in 1994 to 70% in 2006...However, the amount of money they are setting aside is small. Overall, 53% have saved less than $25,000. More importantly, 43% of respondents 45 or older have saved less than $25,000.
(Retirement Confidence Survey 2006, Employee Benefit Research Institute (EBRI), American Savings Education Council (ASEC), and Mathew Greenwald & Associates)

Expect increases in bratty and indignant reactions to this burgeoning trend like this amusing blog post - by a woman who got the news bomb that her still-working (and debt-ridden) 70-year old parents ain't footing a dime on her wedding. Shock! Betrayal! The vast degrees of difference in the opinion commentary give us a bigger clue as to the depth of this conflict.


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i'd love to know the figures for entry-level advertising peeps.

Roberto Gaiero said...

My kids aren't getting anything from me.My oldest son (18) has all of his college paid for through scholarships and he works part-time. Sometimes I think that kid has more in the bank than I do. I plan on spending it all before I die. I'm 61 years old now, and I've got a lot of living to do.

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