Financial Outpatient Care: When Parents Financially Support Their Children Into Their 30s (and Beyond)

Over the weekend, the New York Times published The New 30-Something: Have you or haven’t you cut the financial cord with your family?, an amazing article by Hannah Seligson on the phenomenon of children relying financially on their parents into their 30s or later.

This phenomenon is sometimes called “financial outpatient care,” and it was notably given that title in the book The Millionaire Next Door by Thomas Stanley and William Danko.

The article opens with this:

It’s the financial riddle of the 30-something years. How does anyone, even those with a stable, upwardly mobile job, let alone a family, afford to live in places like New York City, Los Angeles, Boston, Chicago, San Francisco or Washington, D. C.?

The answer: Many are bankrolled, to varying degrees, by their parents.

Hold the eye roll and exasperation about millennials and their failure to launch or the gushing of financial resentment for a moment, and consider the unforgiving economics of trying to make it in this country today. Wages have stagnated, while real estate, medical and child care costs have skyrocketed. As one economic analysis concluded recently: “For Americans under the age of 40, the 21st century has resembled one long recession.”

I want to focus on that last quote for a moment.

For Americans under the age of 40, the 21st century has resembled one long recession.

As someone at the (very) upper end of that age range, I’ll say that this sentence is frightfully true. This isn’t to say that no person under the age of 40 has found success – that’s absolutely not true, and I’d include myself in the “successful” ones. However, for a lot of people my age and younger, financial success has been hard to come by for many of the reasons stated above.

Stagnant wages.

Skyrocketing real estate costs.

Skyrocketing medical insurance costs and medical costs.

Skyrocketing child care costs.

It’s a mess of difficult issues, all jumbled together.

(I don’t even want to imagine what the financial landscape is going to look like for my own kids a decade from now when they’re really entering the workforce.)

This isn’t just a small problem, either:

More than half (53 percent) of Americans ages 21 to 37 have received some form of financial assistance from a parent, guardian or family member since turning 21, according to a 2018 report by Country Financial, a financial services firm in Bloomington, Ill. This may include paying bills for a cellphone (41 percent), groceries and gas (32 percent), rent (40 percent) or health insurance (32 percent).

Then there are the free services. Ms. Palmer, who is 39 and lives near Washington, D.C., said that the free 20 to 25 hours of child care she receives every month from her parents contributed to her family’s decision to have a third child (Dylan Palmer Davé arrived on Feb. 9). If she were to pay a babysitter, Ms. Palmer estimates it would add up to around $6,000 a year.

On average, each millennial parent receives $11,011 per year in combined financial support and unpaid labor, the 2017 TD Ameritrade Millennial Parents Survey found, for an annual total of $253 billion in America.

That assistance is crucial for many, according to the study. A quarter of millennial parents receive hourly support from their parents, in the form of child care or household help, and 18 percent of those receiving financial support say they couldn’t afford their current lifestyle without it.

The key quote that stands out in this section is this: “On average, each millennial parent receives $11,011 per year in combined financial support and unpaid labor” coming from parents and other family members.

At first glance, that’s a lot of money and it seems like a huge benefit to millennials. The reality is a bit of a different story. First of all, such money usually serves to make up the ground lost by stagnant wages buttressed against escalating housing, medical, and child care costs. If average wages have gone up only 3% per year since 1970 while housing, medical, and child care costs have gone up 8% per year since 1970 and other costs have gone up 5% a year since 1970, then the reality is that a newly minted college graduate – and even one into their thirties or forties – might struggle to afford even the basics while their parents, at the same job back in the 1980s, might have found it easy to make ends meet. That’s where this kind of parental “financial outpatient care” comes into play – it makes up for that dramatic change in cost of living without a dramatic change in income.

It goes on:

While it’s true that families with means have always helped their children (discreetly or not), what’s different today is that as the economy has more extreme gyrations and wages flatten, family wealth plays an outsize role in helping people get ahead, said Chuck Collins, a scion of the Oscar Mayer food corporation and the author of “Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home, and Committing to the Common Good.”

Those who do not have parental assistance in their 30s, however, continue to be at a disadvantage. “They are grappling with paying off student-loan debt, their savings might not be as strong because of that, and many are taking care of other family members,” said Iimay Ho, 32, the executive director at Resource Generation, an organization that works with people ages 18 to 35 with wealth or class privilege to engage on issues of inequality.

To me, this is the area from which I find a lot of financial pain right now: younger people – my age and younger – who are trying to make ends meet as their parents did at a similar age, but without any of that financial outpatient care. They’re trying to thrive with a budget where the basic costs are much higher than they were for their parents while their income hasn’t gone up proportionately.

Sarah and I were extremely lucky in that neither one of us needed to receive any sort of financial outpatient care of any kind after college (I didn’t even receive much during college). We were able to jump into jobs that had income levels that were at least as good as what our parents had when they were our age (with inflation included) and, after a few big financial missteps early, we were able to capitalize on a lot of hard work and get ourselves in a good financial position. This only occurred due to a mix of a ton of luck and a lot of hard work. Without either, we would have struggled mightily and probably needed some “financial outpatient care.”

Here’s a specific story that highlights this problem:

Those who do receive parental assistance often do not fit neatly into the stereotype of lazy, entitled millennial. Susan Alvarez, 32, makes over $75,000 as the associate executive director at the Y.M.C.A. of San Diego County. “That is a really decent salary, but it’s still not enough to cover a condo,” she said.

So last year Ms. Alvarez’s parents surprised her with a $50,000 cash gift to help with a down payment on a $435,000 condo three blocks from the beach in San Diego. “I grew up middle-class, and my parents immigrated from Cuba,” she said. “They saw that I’ve worked hard but also that I had the bad luck to graduate into the 2008 recession. I didn’t get a job that paid well enough and had benefits until I was 23, which meant I missed out on almost two years of earning.”

This person makes $75,000 a year and can’t afford a condo because the housing prices near where her family lives are so high that she can’t afford to buy. The only way she was able to buy a condo in her 30s anywhere near her family was with help from her parents, and this is a person in her 30s with a $75,000 job.

This isn’t a financial mismanagement issue, either. Sure, she may have been able to do it on her own living with extreme frugality, but the reality is that housing in her area costs many multiples of her salary, which means that the mortgage payments are going to be crushing. Furthermore, in such a housing market, even rent is crushing, so it’s hard to save up that down payment.

This isn’t just her story, either:

Evidence suggests that purchasing a home, a life event that many hope to reach in their 30s and one of the primary ways people build wealth, is essentially out of reach in most major cities unless your family has generated a good deal of wealth. (Nationally, homeownership rates are falling for millennials, and only two in 10 have a mortgage or home loan.)

Very few people under the age of 40 can afford their own home. If you know someone who can, they’re either living in a very low cost of living area, they’re extremely lucky, or they’re receiving a lot of financial help from their parents – and it’s probably a combination of more than one of those factors.

There’s also the continuing weight of student loans:

Jessicah Pierre, 27, a media specialist at the Institute for Policy Studies, a progressive think tank, has felt she is on unequal ground. “A friend was telling me how it wasn’t that hard to purchase a home. She was like, ‘Do this, do that,’” said Ms. Pierre, who lives in the Dorchester section of Boston. “But she wasn’t considering the fact that she graduated without any student-loan debt, came from a two-income household, as opposed to me. I am starting with negative wealth because I have loans to pay off and was raised in a family with only one income.”

Often, even those who have a decent salary are starting off significantly in the hole because of their student loan debt. I was definitely in this situation when I graduated and it took several years to pay it all off.

The thing is, this article only shows a slice of the big picture. There are many people in their 30s and 40s with elderly parents that are offering financial assistance to them in return. There are millennials out there with no familial support whatsoever who are really struggling – stagnant wages plus high housing and medical and other costs plus no family support is an enormous problem. There are people who made financial mistakes early on, as so many of us do, but their financial situation was precarious to begin with so those mistakes haunt them for decades.

There are a few key lessons that I take away from this article and from the whole concept of parents offering “financial outpatient care” for their children.

‘Financial Outpatient Care’ Is an Inevitable Result of the Times

Articles like this often result in a knee-jerk response from many that “millennials are lazy.” That’s simply not true. Rather, this situation is a product of the times; if you go back to when boomers or early Gen-Xers were in their 20s and 30s and gave them $50,000 in student loan debt and tripled the cost of housing, they’d have a lot of difficulty making ends meet, too.

Simply put, the entry-level salaries for most college graduates, even those in high-paying fields, aren’t sufficient to easily overcome the simultaneous challenges of student loans, inflated housing costs, inflated medical costs, and inflated child care costs. The numbers simply don’t work. This isn’t a matter of millennials eating “avocado toast;” it’s a matter of millennials choosing between food and rent and student loan debt repayment.

When there’s a serious problem like this, people are going to work to find a solution. For some, particularly those with tight-knit families with reasonably affluent parents, financial outpatient care is an obvious solution to the problem. That’s just one solution among many. Other solutions include simple ones like having a bunch of roommates or radical ones like living in your car. People are creative. The solutions they come up with for solving the problems they face might seem strange or uncomfortable.

Open Communication Is Vital, as Is Transparency

If a parent is giving an adult child financial support, communication about that support is vital on both ends. The parents in that situation deserve to know how that money is spent, and that doesn’t mean that the child merely demonstrates the most reasonable part of their budget and claims that this is the actual use.

The reality is this: Any financial outpatient support is going to damage the parents’ financial future. No matter how secure the parents are, it’s still a constant financial drain for them. They deserve to know why and how that money is being spent.

Simply earmarking that money for some specific responsible use isn’t enough, either. It’s simply masking other expenses. If you’re receiving $500 a month and using it for rent, that means $500 of your own money is suddenly freed up to be used for other things. In truth, financial outpatient care actually represents the most flexible portion of your monthly budget. If you take away that money, what portion of your spending actually gets cut? That’s what money from parents is actually providing.

If you’re uncomfortable showing that incidental spending to your parents, then you’re probably closer to independence than you’re willing to admit and you’re merely protecting some lifestyle inflation that’s paid for by your parents.

If you’re a parent and your child is uncomfortable showing you their full budget, then they’re close to or ready for full financial independence and your money is merely inflating their lifestyle a little, not providing essentials for them.

This is why transparency is so important. It reveals the actual need for financial outpatient care. It provides real points for conversation, rather than just saying “Thanks for the rent money!” when the money isn’t actually going for rent money (which means that such conversation is meaningless). If the recipient of financial outpatient care can’t openly communicate their full financial situation, then the parents can rightfully assume that the child is ready for full independence.

This is because…

‘Financial Outpatient Care’ Should Be a Runway

If you’re in a situation where you’re providing financial outpatient care to your children, or you’re in a situation where your parents are providing financial outpatient care to you, that assistance should be treated as a runway so that you can eventually fly off into independence. It should not be used to sustain an unsustainable lifestyle.

Yes, that means that if you are receiving financial outpatient care from a parent, you should be living lean and working toward financial independence, not indulging in frivolous expenses. You should be paying off debts. You should be saving rapidly for a down payment. You should be eating cheap meals at home. You shouldn’t be buying expensive electronics. You shouldn’t be going on trips. You shouldn’t be eating at restaurants every night.

Full financial independence from one’s parents (only leaving dependence on one’s salary) is a powerful financial step for both the parents and the children. It relieves the parents of an enormous financial burden, while also freeing the children to make financial choices as they so choose.

If financial outpatient care isn’t a runway and is being used to fund an unsustainable lifestyle, what exactly happens to everyone when that financial support goes away? It’s going to be extremely hard on the children, as their standard of living is going to crash, and that’s likely to be very damaging on the parent-child relationship. On the other hand, if it never goes away, it’s incredibly damaging to the parents, as it likely keeps them working until well into old age.

Treat financial outpatient care as a runway to independence, not as support for an unsustainable lifestyle. That doesn’t mean that the runway can’t be a long one, it just means that if independence isn’t the goal, then it hurts everyone involved.

Parents, Kids Need to Become Independent

Many parents providing financial outpatient care often do so out of a continuing sense of responsibility from childhood or a desire to maintain some sense of “family.” The catch is that one of the final steps in the parenting journey is to let go and allow your children to fly on their own. That should be the goal of any financial support you give them, not to sustain their lifestyle but to set them up for full independence as rapidly as possible.

If you’re worried that this will damage or sever your relationship with your child, then it is the non-financial aspects of the relationship that need to be strengthened. You need to use this time to rebuild a genuine meaningful bond with your children that goes beyond money. That way, the meaningful connection remains after the children become fully independent.

Kids, Parents Need to Be Free, Too

If you’re an adult receiving financial assistance from your parents, then it’s likely that your parents are at least in their forties and probably in their fifties or sixties. They’re probably hoping to retire and enjoy a few years of relaxation before they begin to face the difficult issues of growing old, and the truth is that unless your parents are extremely wealthy, your financial dependence is eating away at those golden years.

Your parents need to be free of this arrangement just as much as you do. You need to simply be able to fly free. They need to be able to enjoy the fruits of their life labors.

Work together on this. Make the hard choices you have to make to put yourself on a track for independence. Be open with your financial situation with them and show how you’re actually using that help to achieve a goal, at which point you won’t need that help any more.

You both deserve that.

Final Thoughts

Financial outpatient care isn’t inherently a bad thing, but for it to be a good thing, it needs to come with a few key ingredients. Transparency. Communication. A strong relationship outside of the financial one. Responsible financial behavior from the recipient. A plan of some kind that leads to full independence.

If many of those ingredients are missing, financial outpatient care can be a difficult situation for all involved. Don’t let that happen.

If you’re in this situation and it is difficult, swallow a bit of pride or take up a bit of courage and work on repairing the elements that aren’t in place. The place to start is with communication, and that doesn’t mean just talking, it means listening, too.

Good luck.

Read more by Trent Hamm

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.