Retirement Savings at Risk: Gen Z’s Finances Are So Bad, Their Parents May Never Retire
Saving for retirement during an economic recession is hard enough, so why are so many older Americans delaying retirement when they have adequate savings? In some cases, their children are to blame.
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Young generations like Gen Z face challenges that are setting them back financially, including high student loan debt, the rising cost of living and a competitive job market. With limited financial literacy, Gen Z is struggling to navigate the complexities of personal finance, and when they’re forced to move back home or ask for money help, it affects their parents more than they may realize.
Here are three reasons why Gen Z is struggling with financial stability, and expert tips for parents on setting financial boundaries with their adult children.
Why Is Gen Z Struggling Financially?
While artificial intelligence tools and finance advice on the internet might be at their fingertips, Gen Z’s financial challenges can’t all be magically resolved through a mere social media search.
Here are a few reasons why.
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Low Wages, Heavy Debt and Rising Housing Costs
Given that most Gen Zers just starting out their career, they lack the financial stability enjoyed by more established generations. As this generation graduates and adapts to the full-time workforce, it’s natural for them to move out of their parents’ house and gain their own independence. But for many, the current housing economy does not afford this change.
“House prices rose 8.4% last year alone, according to the Federal Housing Finance Agency (FHFA),” said Scott Lieberman, founder of Touchdown Money. “Rent has skyrocketed in many areas in recent years.”
These rising household costs are making it significantly harder for young Americans to find affordable housing. To make matters worse, even if this generation can afford steep housing costs, there are additional financial odds stacked against them.
“Gen Z is struggling due to low wages and a heavy debt load,” said Jay Zigmont, CFP and founder of Childfree Wealth. “Those who come out of college with student debt end up in a hole and it can be difficult to get out. Retirement savings is a pipe dream when you can’t afford basic housing and covering your debt.”
Gen Z’s financial struggles are unfortunately not only affecting their financial well-being — but also their parents who are having to sacrifice their finances to help out their struggling children.
What Will Gen Z’s Future Look Like?
It’s safe to assume that the rough financial times Gen Z are living through will have some long-term implications.
“The high cost of housing may mean that Gen Zers have to be comfortable living at home while they pay off their student debt and move up in income,” Zigmont said. “It may not be ideal, but it may be the only choice in high-cost-of-living areas.”
Moving back in with your parents can also give you more room in your budget to get ahead financially and tackle your debt, build an emergency fund and save for a down payment.
Read: Experts Propose Tax Cap as Social Security Solution — Which Americans Would Be Most Affected?
Why Are Parents Delaying Their Retirement?
Parents have a natural instinct to protect and care for their kids, so it comes as no surprise that many are sacrificing their own financial well-being to help their children.
Here are a few reasons parents are facing delayed retirement.
Parent Plus Loans
Parents who took out parent plus loans to cover their child’s undergraduate education are now carrying the burden of this responsibility. While they might’ve helped their child through college, they are risking their future because of it.
“The new income-driven repayment programs for student loans specifically do not cover parent plus loans,” Zigmont said. “The result is that just paying off student loans may cause parents to have to delay retirement.”
Sacrificing Their Own Comfort
Retirement setbacks can come in many forms. While having your child move back in with you might not seem like a massive financial setback, it can also really add up when covering, food, utilities and expenses for another human.
“I find parents are sometimes sacrificing their own comfort and convenience as adult children move back home, that they want to make things easier for their children or grandchildren than they had it themselves and/or they provide a higher level of financial support than they may have anticipated,” said Todd A. Slingerland, CFP at WeathOne LLC.
Financial Boundaries Parents Should Follow To Protect Their Retirement
It’s important for parents to experience financial peace and not sacrifice their future for their kids. This doesn’t mean completely withholding assistance. However, there are a few boundaries you can establish that will protect your financial stability and, hopefully, help teach your kid more about money too.
Set Loan Terms
Setting loan terms, even with loaning to your kids, ensures fair treatment among family members and it is crucial for maintaining healthy boundaries and teaching financial responsibility.
“Proactive communication is the key to avoiding arguments and jeopardizing relationships,” said Kendall Meade, financial planner at SoFi. “If loaning money to a family member, discuss terms and expectations. This should include when the money will be paid back, what (if any) payments will be made along the way, what (if any) interest will be charged and contingencies if things do not go as planned.”
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Establish Living-at-Home Limits
As much as you love your children, you likely don’t want them to live with you forever. Setting living-at-home limits can help encourage independence and personal growth for both parties.
“Parents who aren’t sure if their kids are responsible can set a time limit for at what age their child must get their own place or they can ask for a modest amount of monthly rent,” Lieberman said.
When in Doubt, Ask the Pros
There’s no shame in needing a little help managing a complicated financial situation during an uncertain economic climate. You are not alone and getting even one session of financial counseling can provide significant relief.
“If you or your child are struggling financially it may help to talk with a financial planner. They can discuss debt paydown strategies, budgeting and even retirement planning. They can help you determine what amount of help you are able to provide without risking your own retirement.”
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This article originally appeared on GOBankingRates.com: Retirement Savings at Risk: Gen Z’s Finances Are So Bad, Their Parents May Never Retire
