Millennials – 3 reasons not to take money from your parents

Between the likelihood that your parents don’t want to tell you how much money they have and the awkwardness involved with actually asking them, my guess is that many of us have no idea what kind of financial shape our parents are in.

And that ignorance can make it really easy to ask for and accept handouts. After all, why would they give you money if they couldn’t afford it, right?

And parents have been giving. 48% of parents aged 40-59 have provided some financial support to a grown child within the last year and 27% said they are the primary source of financial support for a grown child.1

But recently, financial planner Lynn Greer gave me three excellent reasons for why Millennials, who have been lucky enough to find full-time employment, should avoid using their parents’ money for big-ticket items like cars, rent, down payments, or mortgages payments, etc.

1. If your parents run out of money in retirement… (guess who might be on the hook?) – A lot of daily costs go down in retirement. Like food. Because you eat less. Or maybe you eat the same but it’s cheaper because you’re eating dinner at 3 p.m. I’m not sure.But a bunch of new costs also crop up during the later years of retirement. Medications, retirement home fees and lawn bowling shoes can all add up. And the more care seniors need the more it could cost.Cost who though? Hopefully your parents will have planned ahead. But remember, by that point they’ll be earning a tidy annual employment income of zero-point-zero dollars.

Which means if their savings were to run out, the only sources of money they may have left to rely on could be any government assistance or pensions they’re eligible for and… (ready to gasp?) YOU!

Ahh man! That’s bogus! I’ll be supporting my own family by then. And you said they wouldn’t be giving me money now if they couldn’t afford it!”

Well it turns out I was wrong about that.

Apparently, over a quarter of “helping” parents admitted that they have taken on debt in order to financially assist a grown child2.

And one of the major problems with these parents taking on debt is that they have much less time to pay it off, which brings us to our next point.

2. You have more earning potential than your parents – The greatest asset that most Millennials have is their earning potential. After all, we have years ahead of us to collect steadily increasingly six-figure incomes (that’s how it works, right?) This means we also have decades left to pay off mortgages and save for retirement.

But despite this fact, many parents are still choosing to withdraw money from their savings or give away money that they otherwise could be saving.

In fact, 23% of Americans aged 50-70 said their retirement savings have been put “off track” because of their financial support for an adult child or grandchild.3

By depleting their savings or not contributing enough before retirement, these boomers are destroying the long-term growth potential of their money. Basically, they’ll end up with a lot less than they could have had.

One particularly disturbing example I found outlined how if a 52 year old parent invested $50,000 over five years instead of supporting their adult child with that money they could have $121,045 by the time they were 67 (assuming a 7% annual rate of return).4

The numbers will be different in every situation, but regardless, these types of examples illustrate what could be the difference between running out of money in retirement or not.

3. Fights between siblings… and Becky – Some siblings are perfectly happy to take money from their parents, others will feel awkward about it and others still will be happy to take money but won’t want their siblings to do the same because Becky’s the oldest and her husband’s a lawyer so what do they need money for anyways!?

If you’re not lucky enough to have siblings who have made the leap to financial independence, it may be time to pull those lovable moochers aside and stage an intervention. That’s right, be the bad cop your parents so desperately need.

Because when your folks are 93 and need money, who do you think is going to be stuck having to help them?

Will it be your Arrested Development-esque brothers and sisters? Or will it be you, the responsible squirrel of the family who always put away enough nuts for winter?

It’s going to be you, squirrel. The answer is you! So nip this problem in the bud before you lose all your nuts.

Conclusion – Don’t just hope for the best either!

Simply leaving your parents to their own devices may not be the best strategy. As an adult child I think it’s perfectly reasonable for you to ask your parents if they’re on track to be able to support themselves financially during retirement.

After all, how are you supposed to do your own financial planning if you don’t know what kind of assistance your parents might need in the future? A quick meeting with a financial planner could help you all uncover any potential red flags and adjust while everybody is still healthy and working.

Footnotes:

  1. The Sandwich Generation Rising Financial Burdens for Middle-Aged Americans, PEW Research Center, 2013
  2. Bank of America Merrill Lynch, National Endowment for Financial Education, 2015.
  3. Ameriprise Financial Retirement Derailers® study, 2013.
  4. How to avoid paying for your kids forever, TIME Money, 2014.
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Eric Tyndale

Eric has an extensive background in content marketing and professional writing. He loves to write about personal finance and life insurance issues for the Lifenotes blog because he enjoys the challenge of making complicated topics fun for readers! Eric also covers community outreach initiatives.