Why are so many young adults experiencing financial growing pains today?

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Our new study reveals the extent to which young adults struggle for financial independence and still rely on their parents for support. Here's how both of you can find the right balance.
First credit card, first car, first job: There are a lot of stops along the road to adulthood. But one stands out for most 18 to 34 year olds today: cutting the financial ties that bind them to their parents.
Seventy-five percent of young adults equate adulthood with gaining financial independence from their parents, according to Early Adulthood: The Pursuit of Financial Independence, a new Merrill study conducted in partnership with Age Wave. Yet in a period of uneven wages and mounting student debt, reaching that milestone is taking longer than ever before.
Receiving financial support beyond age 25 is becoming the norm. The study found that 70% of young adults have received help from their parents in the past year, and 58% say they couldn't maintain their current lifestyle without it. See the slideshow below for more findings from the study.
Graphic showing a father and son and explaining that 75% of young adults define adulthood as financial independence

3 tips for young adults

Looking past the financial challenges, there is a bright side. "Young adults also have opportunities — from technology to advanced education and new career options — that their parents didn't have," says Lisa Margeson, head of Retirement Client Experience and Communications, Bank of America. "Those, plus more accessible guidance and advice, can help guide their path to financial independence."
Young adults have opportunities — from technology to advanced education and new career options — that their parents didn't have. Those, plus more accessible guidance and advice, can help guide their path to financial independence.
— Lisa Margeson, head of Retirement Client Experience and Communications,
Bank of America
Nick Giorgi, an investment strategist at Bank of America Global Wealth & Investment Management, who participated on a panel at the BuzzFeed/Better Money Habits "50 Under 50k" financial boot camp last fall, offers the following tips to help young adults get started.
  1. Set a budget. A budget can help you have more control over your finances so you can save for your goals. "We've all heard we should live within our means," Giorgi says. "But a careful review of spending may reveal ways to comfortably dial back a notch and live just below your means so that you can find the money to save."
We've all heard we should live within our means. But a careful review of spending may reveal ways to comfortably dial back a notch and live just below your means.
— Nick Giorgi, investment strategist, Bank of America Global Wealth & Investment Management
  1. Attack those debts. According to the study, 80% of young adults carry debts, which can pile up in a variety of ways. First, eliminate outstanding debt on high-interest credit cards, then pay off the entire balance each month. As for whittling down student debt, look into whether you qualify for a repayment plan that bases your monthly payments on your salary, which could lower your payments, says Jean Y. Kim-Wall, managing director and wealth strategist, Strategic Wealth Advisory Group, Merrill Lynch Wealth Management. "But the best solution is still old-fashioned budgeting. Try to pay more than the minimum due every month."
Watch this video to hear what one BuzzFeed/Better Money Habits 50 Under 50k camper learned.

In an age of uneven wages and mounting student debt, reaching financial independence is taking longer than it has before. Nick Giorgi, an investment strategist at Bank of America Global Wealth & Investment Management, offers tips to help young adults get started on the path to financial independence.

Why are so many young adults experiencing financial growing pains today?
  1. Start saving and investing now. Retirement may seem eons away. Still, it's important to contribute what you can to your company's 401(k) plan and potentially even to an individual IRA. Many companies match an employee's contribution to their 401(k) up to a certain amount, so not making at least those contributions is leaving money on the table. Starting early gives your savings time to compound and grow. The money goes in before you've paid taxes, and it grows tax-free until you withdraw it in retirement. "This is your government giving you a tax break, so take advantage," Giorgi says. "At least contribute enough to gain any matching funds from your employer."
  2. And don't consider your retirement account as your emergency fund. According to the study, one in four young adults has already withdrawn money from their 401(k). The primary reason: to pay down credit card debt. "Avoid withdrawing from your plan to pay credit card bills or other expenses," Giorgi says. "Withdrawals before age 59½ will incur income taxes, a 10% penalty and will slow your savings momentum."

Parents: Don't lose sight of your own financial future

Overall, parents today give more than $500 billion annually to their young adult children, according to "The Financial Journey of Modern Parenting," another Merrill study done in partnership with Age Wave. The majority of parents (83%) who provide support say they do so because they want to help their children get ahead. But being overly generous can limit your ability to provide for your own security in retirement, putting your children in the position where they may need to support you as you age. Setting boundaries could help you — and your children.
  1. Protect your own finances. "As much as you want to help your kids, time is on their side, not yours," Giorgi notes. "While they have decades to recover from a market downturn, you need to keep saving until the moment you retire." Borrowing from savings or even pausing contributions to help your kids could jeopardize your own financial independence.
  2. Set transparent rules. The help you offer depends on your personal resources and values, and there's no one approach for all families. But set consistent rules and expectations. "My parents were very clear early on about their own financial situation and what I should and should not expect," Giorgi says. "These conversations weren't always easy, but they were really helpful."
For more insights and an Action Steps Checklist, download "Early Adulthood: The Pursuit of Financial Independence."
Next steps

Source: Age Wave and Merrill, Early Adulthood: The Pursuit of Financial Independence, 2019

Age Wave is not affiliated with Bank of America Corporation

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