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Building wealth in your 20s and early 30s is hard enough when you’re tasked with covering your monthly bills while simultaneously tackling long-term goals, like funding your retirement, paying down debt, and saving for a down payment on a home — all on a starting salary.
But those who also provide support to a parent face a bigger financial hurdle still.
According to a recent NerdWallet survey, roughly 1 in 7 Americans in all age groups (14 percent) assist their parents financially and another 41 percent plan to do so if needed.1
An equal percentage (14 percent) said they were stressed about their parents’ financial situation, a concern that was especially prevalent among younger adults. The survey found that 24 percent of Generation Z respondents (ages 18–27) feared their parents may not have enough resources to sustain themselves, while 19 percent of millennials (ages 2843) felt the same.
The opportunity cost of delayed milestones
Providing support to a loved one is more commonly associated with the so-called sandwich generation — 40- to 50-year-olds who are juggling the responsibilities of caring for their children while also helping their aging parents.
In some cases, the adult child leaves the workforce prematurely to care for their parent or in-law, which can take its toll on their household income and undermine their ability to secure their financial future. (Learn more: The sandwich generation: Tips to protect your financial well-being)
But the potential fallout of offering financial support to a parent (or any family member) when you’re decades younger is more profound, particularly if it delays your ability to achieve other milestones.
“The opportunity cost of helping out a parent can be especially significant for younger adults,” said Andrés Ledesma, founder and managing partner of Ledesma Capital in Dallas, Texas. “Early adulthood is a pivotal time for wealth-building, thanks to the power of compound interest, the accumulation of assets like a home, and career development. Delaying these milestones can have long-lasting implications.”
For example, it may:
- Make it harder to achieve retirement readiness. By waiting even a few extra years to begin saving for retirement, you could potentially compromise your ability to retire comfortably and on time. Consider: A young adult who saves $475 per month for her retirement beginning at age 22 would have amassed pretax savings of nearly $2.4 million by age 67, assuming an 8 percent annual return. By waiting until age 32 to start saving (and missing out on 10 years of contributions and compounded growth), her nest egg would be worth roughly $1.1 million. (Related: Why saving for retirement early is important)
- Delay your ability to buy a home. Homeownership can be an important steppingstone to building wealth. According to a survey of older adults by the Urban Institute, those who bought their first home from ages 25 to 34 accumulated $72,000 more in median housing wealth by age 60 or 61 than those who waited until they were 35 to 44 to buy their first home. They accumulated $100,000 more in median net housing worth than those who waited to buy until they were age 45 or older.
- Force you to postpone or abandon your college education. When income is stretched thin, many young people put off plans to attend college or take years longer to complete their degree while working part time. Thus, their lifetime earnings potential may take a hit. According to the College Board, those with a bachelor’s degree earn an average of about $60,600 per year by age 34, compared with those with a high school diploma who earn roughly $35,200 per year at the same age.2 (Learn more: Is student loan debt worth it? A cost-benefit analysis of college)
- Make it harder to start a small business. Time is money for entrepreneurs. Small businesses, a pathway to the American Dream for many, often take years to turn a profit. If you’re struggling to cover start-up costs or unable to secure a loan because your financial commitments are too great, it may be difficult or impossible to get your vision off the ground. (Related: Looking to start a business? You need a market, means, and mindset)
“Young adults need to carefully consider the long-term impact of diverting funds to support family members against these critical financial milestones,” said Ledesma.
How and why they help
To be clear, young adults who still live with their parents and pay rent are not “supporting their parents.” Once you’re an adult and able to produce a paycheck, you should no longer expect free room and board.
It’s a different story for those who help their parent pay off credit card bills, contribute to their monthly living costs, or bring their parent into their home full time. (Related: When Mom or Dad moves in)
Of those who are currently assisting a parent financially, the NerdWallet survey found that 60 percent were helping to pay for food, 48 percent paid for other necessities, and 41 percent helped with housing costs.
In many cases, adult children provide financial support to a parent willingly, repayment for a lifetime of love and support. That’s especially true in cases where the parent may have emigrated to the U.S. to create a better life for their children, or sacrificed financially to put their children through school.
Others may be the only financial lifeline in their family, the one with enough resources (or earnings potential) to help a parent who fell on hard times, became ill, or simply struggled to manage their money responsibly. In some cases, the obligation to assist may lead to feelings of guilt or resentment. (Learn more: How to help friends and family with money problems)
Whatever the scenario, just know that it is possible to help without derailing your own financial future.
Talk it out
Start with an open and honest conversation.
Are your parents able to meet their monthly expenses and, if not, how much more do they need? Are they requesting a one-time financial gift to pay off debt, such as a medical expense? Or are they looking for a loan that they intend to repay? Does their current or future retirement plan involve living with you?
“In many cases, the easiest way to start that conversation is to sit down with your parents and ask them how they chose to help or provide care for their own parents (your grandparents),” said Fred Denitz, senior vice president of Lenox Advisors in Los Angeles. “Focus on something that is familiar, something your parents have experienced. Then ask your parents how they would like to be cared for, either today or as they age.”
If you have siblings, be sure to include them in the discussion. Perhaps they are willing to contribute, either financially or by sharing the responsibility of providing housing for your parent on a rotating basis.
Set limits
While it’s noble to want to come to the aid of a loved one, remember that you are not responsible for your parent or anyone else, especially if doing so might sabotage your own financial stability. They wouldn’t (or shouldn’t) want that for you either.
“It’s crucial for adult children of any age to set clear limits on their financial support, especially when it comes to protecting their own financial future,” said Ledesma. “This is even more vital for those just starting out. Open and honest communication with parents about financial boundaries is essential.”
If you can’t afford to provide financial assistance right now, say so.
Married couples should, of course, consult each other as well so they align on boundaries. For example, your spouse may not be willing to supplement your parent’s living expenses long term or have your mother move in full time.
“It’s very important to bring your spouse into the conversation,” said Denitz.
Be especially cautious if your parents need cash because they managed money poorly in the past. In that case, if you wish to help, consider paying one of their bills directly or delivering groceries as needed rather than giving cash, which could easily be squandered.
Other tips from financial professionals: Never commingle your bank accounts or cosign for a loan, which would leave you on the hook for their bills if they fall behind on payments. That could also ding your credit score, making it harder for you to qualify for the most favorable rates on future loans.
Help them find resources
The support you provide to a parent need not necessarily be financial.
Federal assistance programs abound that may help lower-income adults cover the costs associated with housing, health care, food, and utilities. You can help your parent create a personalized list of potential benefits for which they may qualify by using the federal benefit finder tool.
State and local governments, as well as religious institutions and nonprofit groups, also offer assistance programs that may further lighten your parent’s monthly burden.
Often, young adults are more adept at doing online research, especially where language barriers exist. It may be that your parents don’t need your money. They just need help navigating the public assistance resources that already exist.
Help manage their money
You may also be able to help your parents manage their money more effectively. If they are struggling financially, offer to review their budget with them to find out why.
Perhaps they spend too much on housing relative to their income. Or, they rely on high-interest credit cards for unexpected expenses like a roof repair — a cycle that can be hard to break without an emergency fund. (Learn more: What is a personal budget and why is it important?)
If their monthly debt obligations are too high, you may be able to negotiate with lenders on their behalf to reduce their interest rate. Or, connect them with a credit counseling agency that can help them consolidate their balances into a single, smaller monthly payment.
Simply paying your parent’s bills without diagnosing the problem is a Band-Aid solution — not a permanent fix.
Hire a financial professional
Better yet, bring in a pro.
A financial professional can offer valuable guidance that may help your parents get their finances under control so they can begin building wealth.
Importantly, third party expertise takes emotion off the table, which may help facilitate candid conversations that are sometimes difficult between a parent and child.
“We’re here to orchestrate and moderate tough conversations,” said Denitz. “And you don’t have to spend thousands of dollars to talk to a professional. Most often, a trusted advisor can help you start that conversation for free.”
If your parents have multiple loans, for example, the financial professional may recommend a payoff strategy that helps them become debt-free faster. If they own a home, they may explore the possibility of using a home equity line of credit (HELOC) as a back-up emergency fund, while laying out the potential risks of using your home as collateral. (Learn more: Home equity loans: Pros and cons)
“If you are worried about your parents' need for caregiving as they age, a professional may also suggest that you consider purchasing long-term care insurance for your parents, which you can buy for a 50-year-old parent for pennies on the dollar relative to what their future need might be,” said Denitz.
Don’t go into debt
Finally, remember that this is not your burden to bear.
If your income allows and you’re willing to help, it’s fine to give your parents a helping hand. But never do so if it forces you to assume debt.
That will only hurt both of you, and potentially cause resentment that can harm the relationship.
“While supporting family is commendable, it shouldn’t come at the cost of your financial stability or future,” said Ledesma. “Setting limits helps prevent the situation from becoming financially unsustainable or leading to debt.”
Conclusion
Young adults who are just starting out have their hands full financially, all the more so if they’re also assisting a parent.
By setting limits, helping them create a budget, and finding programs that might reduce their monthly expenses, however, you can provide the support your parents needs while keeping your own financial future on course.
Discover more from MassMutual…
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Need a financial professional? Find one here
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1 NerdWallet, “2024 Financially Assisting Aging Parents Report,” April 16, 2024.
2 College Board, “Education Pays 2023: The Benefits of Higher Education for Individuals and Society,” June 2019.
