Millions of American parents could be putting their plans for a comfortable retirement at risk by continuing to act as the family bank for their adult children.
"Parenting is a lifelong financial commitment," Surya Kolluri, a managing director at Bank of America Merrill Lynch, told VOA via email. "Parents spend twice as much on adult children as they contribute to their retirement accounts."
More than three-fourths — 79 percent — of parents with adult children provide financial assistance to their offspring, contributing to living expenses like rent, groceries and cellphone bills, according to a recent study from Merrill Lynch.
In many cases, that parental generosity threatens to worsen a looming retirement crisis, according to labor economist and retirement expert Teresa Ghilarducci, who says 40 percent of middle-class people now approaching retirement will be poor or near poor by the time they're 62.
"All Americans at every level of income will have some trouble preparing for the retirement especially if their lives are long and their health care needs are substantial," Ghilarducci said via email. "But people at the bottom 90 percent of the income distribution are going to find that the rely on Social Security for most of their income and that won’t be enough."
The study found U.S. parents spend a total $500 billion on adult children annually.
And that doesn't even include the sizable checks parents write to cover one-time, big-ticket expenses like weddings and home purchases. About 6 in 10 parents help pay for their adult children’s weddings, and one-fourth help a child buy their first home.
A vast majority of parents — 82 percent — say they're willing to make a major financial sacrifice for their adult offspring.
"Pulling money from retirement accounts to help out adult children may seem like a generous move for adult children but it’s actually a decision that may hurt your adult children in the long run," Ghilarducci says. "Without the back-up funds to pay a home mortgage or pay off your house, you may have to move into their house to rely on them for medical needs."
Half of all parents in the study say they are willing to draw on savings, and 43 percent would downgrade their lifestyles to help their kids. One-fourth would take on debt and withdraw cash from retirement accounts. Asian, African American and Latino parents are more likely to say they would sacrifice their own financial security for their children.
Mothers can be especially susceptible to helping children at their own expense.
"Research shows women are more vulnerable to take from their retirement security to help children with college, divorce expenses, child support," Ghilarducci says. "Women should put their 401(k) in a locked box and view it as off-limits."
But many of these generous parents might be having second thoughts.
In the study, almost half say they regret not setting clearer boundaries with their children about what financial support they are willing to provide.
"Educating children on finances isn’t without challenges," Kolluri says. "For example, while 59 percent of parents believe they taught their children the benefits of investing, only 31 percent of teenagers reported having learned about it from their parents. While parents should aim to serve as financial role models for their children, they should also look to their family and peers for advice on how to best educate children about important personal finance topics at any age."