According to a study conducted by the Pew Research Center, only 54 percent of Americans aged 18 to 24 have a full-time job — the lowest level registered since the government began collecting the data in 1948.
Of course, some of the less-than-fully-employed young adults are still working part-time, and/or attending some institution of higher learning.
But the less work (and income) and more classes (and expenses) the kids have, the more likely it is that they are still relying on their parents for financial support — precisely when the moms and dads would rather be channeling any extra cash toward more urgent needs, such as a looming retirement.
If you have clients stretched between supporting their older youngsters and saving for retirement, you can delicately help the parents nudge, shove, and kick the offspring out of the proverbial nest.
Show Them the (Lack of) Money
It's understandable if parents have a hard time saying “no” when their children have a financial want or need. Thankfully, it's not your job to cut off the cash flow to the younger generation.
But it is your responsibility to quantify the short- and long-term ramifications of paying for a kid's pricey private school, or subsidizing her high-end apartment in an expensive neighborhood.
When the parents learn that their benevolence today could mean a shorter and stingier retirement, it could be the wake-up call to re-evaluate what is actually affordable for them (and their children).
Cap College Costs
Eighteen year-olds are sometimes spellbound by the idea of attending a particular private or out-of-state university, with little consideration or understanding of the price tag on four or more years at their “dream” school.
Parents are understandably reticent to squash their precious children's educational dreams, but should be concerned about the tangible benefit of an exorbitantly-priced diploma — not to mention where to find a spare quarter-million or so to cover the total cost.
Middle ground can be found when the parents agree to pay for an education at a “reasonable” school, such as an in-state public university, or a private college that offers a sizable financial assistance package to the student.
If the child still wishes to attend a more expensive institution, he will be forced to figure out how to make up the difference between the price of his preferred school, and what his parents are willing to provide.
Make the Kid Get the Loan
The natural response of a budding scholar to this conundrum is, “Then where am I supposed to get the rest of the money?”
To which the parents should reply, “See if the school's financial aid officers can help pay what the bursar's department is demanding.”
The first step to finding more money for college is to fill out the Federal Financial Aid Form (www.fafsa.ed.gov) every year, and as early in the calendar year as possible.
The family should prepare themselves for the fact that the majority of the financial assistance may come in the form of loans, rather than grants or scholarships. But that shouldn't cause them to give up and write a check just yet.
Instead, the first loans should be taken out in the student's name, since she has almost as many decades to pay off the debt as her parents have years to save for retirement.
If the parents reach retirement with more than enough money on which to rely, they can always use their excess assets to pay off the education debt incurred by their children.
Even if the parents can't or won't provide any subsequent assistance in repaying the loans, several programs offer reduced interest rates, payments, and eventual loan forgiveness to certain student borrowers (find out more at www.ibrinfo.org, and www.finaid.org).
Clamp Down on Credit
Some clients will tremble at the notion of their children taking on any debt at all, since overextended kids may one day turn to the parents to pay off a big car loan or credit card bill.
The parents can prevent this scenario by getting their hands on the younger generation's credit information. The raw data is available for free at www.annualcreditreport.com, and more detailed reports (including their FICO score) can be obtained for a small fee at www.myfico.com.
More severe (and effective) restriction can be applied by having the child freeze his credit report with each of the major credit bureaus.
The “freezing” process is usually determined by state law, and information pertaining to your clients' particular state of residence can be found at www.tinyurl.com/creditfreeze.
No “Cold Turkey”
Even when convinced it's the best action for all parties, many parents will have a hard time cutting off the cash they have been providing to their children.
A more palatable plan for both parties may be a schedule of gradually diminishing parental support over a few years, to which the child agrees as a condition of getting the money in the first place.
Parents who wish to make the agreement a “teaching moment” should draw up the terms and timing of the support in a written contract signed by them and their child.
The contract may not be legally-binding for either party, but it does give some ammunition to be trotted out by the parents if the kid comes back later to ask for more money.
Be the Bad Guy
If the clients know they should cut what they give to their kids but can't find the courage to say, “No,” you should offer to shield the parents from blame cast by the upset descendants.
Give the mom and dad permission to look their child in the eye and say, “Honey, we would love to help you out, but our financial advisor says it's not a good idea right now.”
The kid gets a good dose of reality, the parents save thousands of dollars they would have otherwise spent, and everybody in the family can still be civil to each other over the holidays.
Just don't be surprised if it's a little tougher to maintain the oversight of the assets once the parents pass away.
Kevin McKinley CFP is Principal/Owner of McKinley Money LLC, an independent registered investment advisor. He is also the author of the book, Make Your Kid A Millionaire (Simon & Schuster), and provides speaking and consulting services on family financial planning topics. Find out more at www.mckinleymoney.com.