The Bank of Mom & Dad - Can People Still Afford To Grow Up?

Summary

The video delves into the growing role of the 'Bank of Mom and Dad,' highlighting how parents are increasingly financing their children's major life milestones, from home down payments to everyday expenses. With a staggering amount of financial support being provided, the video explores the complexities of this trend, the inequality it creates, and the long-term effects on both parents and children. It discusses how this dependence can hinder financial independence, contribute to rising costs, and perpetuate cycles of wealth inequality. The video ends with a call to understand the economic forces shaping today's financial struggles for young adults.

Takeaways

• 😀 The Bank of Mom and Dad has become one of the largest financial institutions in the world, financing billions in loans, often for down payments on homes.
• 😀 Parents are providing substantial financial support to their adult children, with the average amount being $1,474 a month for living expenses, groceries, medicine, and more.
• 😀 Millennials, even those over 30, still rely heavily on financial support from their parents, with some receiving nearly $900 a month.
• 😀 More parents are contributing significantly to their children’s expenses than to their own retirement, creating financial strain for future generations.
• 😀 Over 50% of young adults (18-29 years old) still live with their parents, with financial dependence being a growing trend.
• 😀 Many young adults would struggle without parental support, particularly in securing housing, a car, or even basic living expenses.
• 😀 Parents who cannot afford to support their children create a major financial challenge for young adults, who often resort to high-interest debt to get by.
• 😀 Access to financial help, like a place to stay or car to use, can make a massive difference in young people’s career opportunities and financial success.
• 😀 The ability to take financial risks, such as internships or business ventures, is often a luxury reserved for those with financial safety nets.
• 😀 Reverse mortgages are increasingly popular among the Bank of Mom and Dad, allowing parents to raise capital from their home equity to assist their children.
• 😀 Inheritance is being given earlier in life, with many parents using home equity conversion mortgages to offer financial assistance as an early inheritance to their children.

Q & A

What is the 'Bank of Mom and Dad' and how big has it become?

The 'Bank of Mom and Dad' refers to the financial support parents provide to their adult children. A 2019 study revealed that American parents represented the seventh-largest mortgage lender in the country, financing over $47.3 billion in the previous year.

How do parents typically help their children financially?

Parents often provide their children with down payments for homes, monthly living expenses like groceries and gas, and sometimes cover bills for cell phones and vacations. On average, parents were found to be giving about $1,474 per month to cover these costs.

What concerning trend is being observed regarding parents' financial support?

Parents are contributing more to their adult children's financial needs than they are to their own retirements. This complex financial assistance includes things like equity releases, financial guarantees, and sometimes comes with serious terms and conditions.

How does the financial situation of young adults compare to previous generations?

Many young adults, particularly those aged 18-29, are still living with their parents, often due to the high cost of living, student loans, and other financial pressures. Without their parents' support, it would be difficult for many to afford basic necessities, such as housing and transportation.

How does the financial safety net provided by parents impact young adults' career choices?

Having financial support from parents allows young adults to take more calculated risks, such as pursuing internships or high-risk job opportunities, without the fear of financial ruin. This safety net can give them a head start in their careers compared to others who do not have similar support.

Why is breaking the cycle of poverty so difficult, according to economist Peter Teman?

Peter Teman's research suggests that breaking the cycle of poverty requires at least 20 years and no major setbacks. He claims that prior to the 1970s, wages and productivity growth were more aligned, allowing people to build wealth through real estate and asset accumulation. However, after this period, wages stagnated while debt became more accessible.

What role do reverse mortgages play in supporting the 'Bank of Mom and Dad'?

Reverse mortgages are a tool used by elderly homeowners to access home equity. Parents can use this money to help their children, often as an early inheritance. The loan is repaid when the homeowner sells the property or passes away. These loans have higher interest rates and fees but have become a popular means for parents to help their children.

What are the advantages for parents in giving their children an early inheritance through reverse mortgages?

Giving an early inheritance allows parents to see their children benefit from the money, rather than leaving it to be spent after they are gone. Additionally, the impact of early financial assistance on a child's opportunities is greater than the impact of a later inheritance.

How do conditions attached to financial support from parents affect children?

Parents who help their children financially often attach conditions, such as personal rules related to career, family planning, or financial behavior. These conditions can create dependency, influencing the children’s life choices and potentially delaying their full financial independence.

What is the wider impact of the 'Bank of Mom and Dad' on society?

The financial support from parents is creating an unequal society where those without this support face greater challenges in achieving financial independence. As the 'Bank of Mom and Dad' becomes more normalized, it makes life milestones like homeownership and education even more expensive for those who do not have access to these resources.