Household Dynamics

Introduction

A recent report produced by the Pew Research Centerⁱ discusses the increasing trend of parents financially supporting their adult children well into adulthood—a phenomenon driven by higher living costs, delayed adulthood milestones, and a wider wealth gap between generations. This support includes helping with significant expenses like weddings, home purchases, and everyday living costs. The Pew Research Center found that 59% of parents have supported their adult children financially in the last year, and a significant portion of young adults under age 25 (57%) live with their parents—an increase from previous decades. Further, only 45% of young adults (ages 18 – 34)indicate they are completely financially independent.

Financial help from parents is often crucial for young adults to overcome economic barriers, such as making a downpayment on a house in an expensive market. However, this extended financial dependency can impact social mobility and personal finances, affecting both young adults and their parents. As a Financial Professional (FP), it is essential to consider the complete picture of a household—every member affected by financial planning and decision-making, even those no longer considered dependents. By understanding how different household members prefer to communicate, how they feel about their finances, and how they differ in behavioral tendencies, FPs can add value to their practice, increase client loyalty and retention, and help their clients achieve their financial aspirations.

Five key trends have led to significant differences in the achievement of financial milestones between young adults (in 2023) and their parents (in 1993):

• ‍Higher Education. Approximately 40-44% of people aged 25-34 have at least a bachelor’s degree, compared to 24% of young adults in that same age range in 1993. 

• ‍Full-Time Employment and Wages. Approximately 72% of individuals aged 25-34 are employed full-time, while around 67% were similarly employed in 1993. Much of this change is driven by more women working full-time: 55% of women aged 25-34 worked full-time in 1993 versus 67% now. Inflation-adjusted median wages have also increased by approximately 26% for those aged 25-34 now over the same age cohort in 1993.

• ‍Student Debt. Unsurprisingly, the amount of student debt for young adults now is significantly higher than in 1993. In 1992, the percentage of individuals aged 25-29 with student debt was 28%, compared to 43% in 2022. The median (inflation-adjusted) cost of this debt has also increased. In 1992, the median amount owed by young adults aged 25 – 34 was $6,000- $7,000; now, that amount is $16,000 - $20,000.

• ‍Mortgage Debt. While the proportion of young adults aged 18-34 who carry mortgage debt has remained relatively stagnant, the (inflation-adjusted) balance on that debt has increased dramatically. In 1992, the median balance was $105,671 for adults aged 25-29 and $120,174 for those aged 29-34. In 2022, that amount was $165,000 and $190,000, respectively.

• ‍Marriage and Children. Young adults today are waiting longer to get married and have children. In 1993, 50% of adults aged 25-29 were married; in 2023, that share is only 29%. Moreover, 43% of adults aged 25-29 had at least one child living in the household in 1993, while 26% of adults that age do today.

Client Impacts

• ‍Extended Financial Support. Many young adults receive extended financial support from their parents, which can affect their journey towards economic independence and strain their parents’ financial situation.

• ‍Use of Funds. Financial support from parents is mainly directed towards everyday expenses and significant payments like down payments on homes. Some clients may need to be made aware of how funds are being used or may have unrealistic expectations of their children's obligations to them because of financial support.

• ‍Financial Independence Variability. The degree of financial independence varies within the young adult age group, with older individuals more likely to be financially independent. Parents may inadvertently hinder financial independence, especially for children using funds for everyday expenses or who do not use financial support to save for eventual independence. 

Financial Professional (FP)Impacts

• ‍Navigating Dual Client Needs. FPs face the challenge of addressing the needs of adult children who require assistance and parents who want to provide support, often needing clear boundaries or expectations.

• ‍Communicating Effectively with the Entire Household. While previously, FPs may have disregarded the desires of dependent children and worked solely with their parents, now FPs have to converse and potentially plan with a multi-generational household. This means that what worked in terms of outreach and conversational style for the parents may not work for their adult children.

• ‍Retention. Related to the above, FPs now must manage to retain and engage both parents and their adult children—individuals who may have very different wants, needs, and communication preferences. 

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End Notes

[i] Minkin, Rachel, Kim Parker, Juliana Menasce Horowitzand Carolina Aragão. “Parents, Young Adult Children and the Transition to Adulthood.” Pew Research Center, Pew Research Center’s Social & Demographic Trends Project, 25 Jan 2024.

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