It’s no secret that Millennials and Gen Z are in a financial quagmire. That’s old news: the cost of living, inflation, and a stagnant job market have all pushed younger generations to the brink of despair. Millennials (born between the early 80’s to the late 1990’s), and Generation Z (born in the late 90’s) have had it rough: many are struggling to keep afloat in an economy that has been less than kind to them. This goes all the way back to the 2008 great recession, which was the start of a chaotic, bumpy, economic ride that has affected elder Millennials several years later. Then came the pandemic, which upended the lives of many Millennials and Gen Z (economically speaking). There is, as of 2024, a looming recession on the horizon which is going to (further) diminish what little finances the younger generations have.
So, naturally, parents wants to help out. We think.
How are parents helping their kids out?
Housing is probably the most pressing issue for many younger people, as the astronomical cost of housing/rent has forced many young people (at a time when their parents were living on their own at the same age) to either move back in with their parents, buddy up with roommates, live off the grid in rural areas, or as a last resort, move out of North America altogether. Those who move often settle into cheaper countries, like Mexico, Portugal, or Thailand.
Usually, those who move have either a cushy job or remote job already lined up. If it’s a remote job, it’s through a North American company all lined up.
Living abroad can come with a set of unique challenges to deal with: cultural differences, infrastructure, climate, etc. It’s a whole new way of adapting to a new life.
The ability to up and leave may not be so easy: many have family, friends, and a network of people in Canada and the U.S. So moving to another country may not necessarily be the best option for younger people (or older ones, for that matter).
What is the solution for younger Generations?
For those who are choosing to stick it out, they continue to struggle, hopeful that the economy will improve, that the job market will bounce back, and that inflation will eventually ease. We’re seeing some of that take effect; the easing of inflation will no doubt help younger Canadians save, but it’s not a permanent solution to the whole mix of issues that Millennials/GenZ are facing.
What can parents do to help?
Millions of young people across America are expecting an inheritance from their parents. In fact, around a third of U.S. Millennials and 38% of Gen Zers are expecting a payday when mom and dad pass, according to Northwestern Mutual’s 2024 Planning & Progress Study.
Canadian Millennials and GenZ are following suit: more than HALF are banking (no pun intended) on an inheritance to help boost their income and their savings, according to an Edward Jones study.
Look, relying on the bank of mom and dad isn’t pleasant, but the reality is that while Millennials/GenZ are struggling, they need extra help: help that they’re parents didn’t need to the same extent (we’re generalizing here). A “living inheritance” – an inheritance from parents to help pay for the essentials while their (adult) children are in the prime of their lives – can go a long way to help members of the younger generation “launch.”
This is all assuming, of course, that the younger generations will get anything at all – either in the prime of their lives – or when they retire. The way things are going right now, it’s kind of bleak: Millennials and GenZ will be lucky to ever retire.
While the younger generations are hopeful about their parents helping them out, their parents might be dashing their expectations: a study shows that Boomer parents are less amenable to forking over their inheritance, even to help out their children.
A study conducted by Northwestern Mutual shows a cavernous gap between the expectations of Boomers and that of their children: while 38% of Gen Zers and 32% of Millennials are expecting (or hoping) for an inheritance, only 22% of boomers expect to leave an inheritance.
Boomers, like everyone else, are feeling the financial pinch, too. The idea that Boomers will be living large on a sunny beach somewhere, during retirement, isn’t really the reality for a lot of Boomers: they, like everyone else, are worried about their finances.
Boomers are feeling the pinch and (mostly) spending less: they’re saving for their own retirement, which includes the healthcare facilities they might they wind up in after retirement.
So with everyone feeling squeezed, is there a way for Boomer parents to help themselves, their children, and save for retirement?
As it turns out: yes!
Is spending down all your assets really smart for you?
Well first, planning to either spend or squirrel away every cent of your retirement money may not make sense: maintaining a safe withdrawal rate, on the other hand, leaves enough money in your retirement account without penny-pinching, and sacrificing your lifestyle after retirement.
What remains of your retirement portfolio when you pass away can be an inheritance for your kids. If you own a family home and want to stay in it until you die (as a Forbes survey revealed 92% of older adults do), this valuable asset could be passed down to your children. You could even joy being part of a multi-generational household.
Enjoy your future as a (maybe not-so-big) spender, while providing for your family.
One caveat: to maximize the benefit your kids get from you (financially speaking) you may want to think about providing a “living inheritance.” Many younger Millennials and GenZ are expecting something from their parents to help them along. Some inheritance can help younger people from the (admittedly) bleak financial future they are currently facing.
That inheritance, in the prime of your children’s careers and adulthood, could help them pay down their loans, and boost their savings.
See, Millennials and Gen Z aren’t really the stereotypical avocado-and-toast, latte-sipping, snowflakes that they’re portrayed to be (well, most of them aren’t, anyway). The younger generations are scraping by.
Baby Boomers Can Give their kids a Living Inheritance and prep for Retirement
As Baby Boomers edge closer to retirement, the topic of the transfer of wealth into the hands of the younger generations (for Gen Z in particular) has been brought up numerous times in the media. A generation, struggling to begin their adult lives, striving to keep afloat, would really benefit from a “living inheritance”— wherein parents would provide financial support while parents are still alive.
Hey, a “trickle down” concept that may actually work!
Understanding the Concept of a Living Inheritance
It’s basically as described – a “living inheritance” is supposed to help out the struggling members of Generation Y and Z. The money provided to these (adult) children is supposed to help pay for milestones: students debts, save for a house, etc.
The fun stuff, like trips, concerts, etc., can all be paid for by themselves when they have the money.
If parents really want to do this, they need to be able to balance their support with careful retirement planning. Parents need to ensure that they can both help their children, doling out money for their needs, while maintaining their own lifestyle in retirement.
Steps for Baby Boomers to Provide a Living Inheritance
If you’re a Boomer looking out for your own retirement, while trying to help your kids, you’ll want to follow these steps:
1.Assess your healthcare needs: You may want to sit down with a financial planner on this one. Someone who can assess your potential healthcare needs and what you might need in the future: visits to the doctor, medicine, what type of healthcare facilities you may reside in, etc. All of this may take time, so discussing this with both your children and a financial advisor, could help.
2. Tax Considerations: Just as with your healthcare needs, you may want to discuss the implications of gifting money to your children with your financial advisor. There may be, depending on the area you live in, a way to gift a specific amount of money tax-free. Again, all of this should be discussed with your financial advisor.
3. Trial-Run: One financial advisor recalled how one of his client’s had gifted his (adult) Millennial child with $200k as a “test-run.” Essentially, the parent wanted to see how well the child would spend his/her inheritance. Can you guess what happened?
The child squandered it. This was an adult, by the way. So, the parent decided that instead of a “lump-sum” inheritance to their child in question, to instead dole everything out in Trust. You can find information about Trusts, here.
One way to avoid this is to discuss what the money (the living inheritance) will be used for. If your children use it pay off their debts/put the money in savings, you’ll know the money is being used responsibly.
The Benefits of a Living Inheritance
So this is, like everything else in life, all about balance: your needs, desires, and whatnot with the need to help out your children.
There are drawbacks, of course: one drawback is the simple fact that for many who simply don’t have family to rely on, life will become tougher in the decades ahead, and we may see more “intergenerational unfairness” come into play. What that means is, according to a Think Tank called Generation Squeeze, is that people who succeed in life will be the ones with inherited wealth.
That is a discussion for another time, but in the meantime, if you want to help out your child(ren), a living inheritance may be your best bet, particularly when it comes to housing. This can strengthen the relationship between you and your children, and set them up for success.
