Nobody ever said being an adult was easy, but millennials and Generation X folks appear to be having an especially rough go of things from a financial perspective.
For instance, a March 2016 study from GOBankingRates showed that a third of Americans hadn't saved a dime toward retirement, and 56% of total respondents had $10,000 or less saved for their golden years. When broken down by age, 72% of millennials ages 18 to 34 were at $10,000 or less saved (including 42% with nothing saved), while 52% of Gen Xers, which includes people between the ages of 35 and 54, had less than $10,000 saved for retirement. This lack of savings could very well have to do with the "I'll save later" mentality ingrained in the minds of many Americans, as evidenced by the 5.3% personal savings rate in June 2016.
But it's not just putting away money for retirement that's challenging millennials and Gen Xers -- it's also simply meeting month-to-month expenses.
The bank of Mom and Dad
According to a recently released study from Society of Grownups, in partnership with Wakefield Research, a jaw-dropping number of adults between the ages of 21 and 45 are relying on financial support from their parents to make ends meet. Of the 1,000 adults surveyed, 35% were regularly receiving financial support from their parents. And it isn't just 20-somethings skewing the results. Almost 30% of 30-year-olds were receiving regular financial support from their parents, and 21% of people in their early 40s needed a financial pick-me-up from their parents.
Of the adults surveyed, quite a few mentioned this financial support comes in the form of a paid cellular phone plan. Parents were also noted as paying for groceries, car insurance, and even rent. Roughly 70% of those receiving financial support noted that they wouldn't be able to get by without their parents' help.
On the bright side, this suggests that 65% of adults between the ages of 21 and 45 are financially independent. Furthermore, more than a third of the 1,000 adults surveyed planned to provide their parents with financial support within the next seven years.
In spite of this ray of sunshine, this data is particularly worrisome for two reasons. First, if millennials and earlier-age Gen Xers can't figure out how to make ends meet financially, how are they going to be able to save and invest for their future, or simply make smart financial decisions if they do manage to save money?
Secondly, there's the concern that supporting their children could actually be cheating parents out of the retirement they deserve. It's perfectly natural to want to support and protect your children so that they have as good, if not better, lives than you did. However, younger adults have the ability to borrow, and they have time on their side. Parents have usually lost most of their time leverage by the time their children have reached adulthood, and parents certainly can't borrow against their retirement. Providing monetary support to a child could be costing parents a far bigger amount come retirement.
Ways millennials and Gen Xers can break the cycle of borrowing from their parents
The clearest problem for millennials and Gen Xers is more than likely a lack of financial accountability. A 2013 poll from Gallup found that only around a third of Americans kept detailed monthly budgets. Without a monthly budget it's extremely difficult to understand your cash flow, especially your outgoing cash flow. Ultimately, if you don't understand your cash flow, you'll have a very tough time optimizing your ability to save.
The advantage millennials and early age Gen Xers have is that budgeting tools can be found online these days. That means no more need to break out the paper and pencil and do the math on your own. In fact, a good 30 minutes each month is probably all you'll need to really formulate a working monthly budgetary plan.
The follow-through is what'll need extra effort. A budget does no good if you aren't held accountable to it. Thus, one of the smartest moves you can make is to automatically have a percentage of your weekly, bi-weekly, or monthly pay moved to a savings or investment account. This automatic withdrawal, which you can always adjust, will hold you accountable for your spending habits and put you on track to break your habit of financial dependence on your parents.
It's also important that everyone within the household stick to a budget, or a general household budget, as it'll improve your chances of remaining accountable.
Millennials and Gen Xers also need to do what they can to seek out the skills needed to earn more money from work. For example, going to college and obtaining a four-year degree could result in substantially higher average annual income than a high school diploma. There's also more room for socioeconomic advancement. If you've already gone to college, consider attending workshops that'll improve your knowledge in certain aspects of your job field. The more initiative you show your boss and company, the more likely you'll be viewed as a valued asset and be compensated as such. With more income and a strict budget, you'll be able to break free of the shackles of financial dependence.
Parents should be involved, too
Finally, it's also up to parents to play a role in pushing children in the right direction, whether they're 21 and fresh out into the working world, or in their early 40s. Parents can do this in two ways.
First, parents need to be frank with their children and lay out a path to ween them off financial support. Just as you'd adjust to a new budget over the course of a few months, you can offer a six-month or one-year timeframe with which to let your kids know that financial support for certain, or all, expenses is going to cease. It's also important to stick to your decision, otherwise your kids won't strive for their own financial independence.
The other thing parents should do is work as their children's financial advisor. The best thing you can do for your kids is pass along what you know about money management and saving. Help them out when they're reviewing their budget on a monthly basis, and teach each them about time and compounding. According to the CEO of the National Endowment for Financial Education, Ted Beck, "Parents are still the No. 1 source of information about money."
Breaking the cycle of financial dependence starts now.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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