We are excited to announce the release of our second annual Affluent Family Financial Support Survey. The survey of individuals in the U.S. with household investable assets of at least $500,000 examined how affluent parents balance the needs and expectations of their families with their ability to live comfortably in retirement and leave a legacy.
“Affluent parents are trying to best prepare for their children’s futures by financing higher education, helping them get their first jobs and tackling important money conversations,” said Michelle Brownstein CFP®, Vice President of Private Client Services at Personal Capital. “Fortunately, these individuals are starting to cut the purse strings on their adult children to prioritize their own retirement saving and spending.”
The Cost of Raising Children: From Grade School to Graduation
Affluent parents have a realistic idea of what it costs to raise and support a child in today’s America. The Department of Agriculture estimates the average cost of raising a child over their lifetime to be $233,610, and 65 percent of affluent families reported planning to spend $250,000 or more.
Overall, parents anticipate the cost of raising a child over the course of their lifetime, excluding inheritance, to be $711,000, on average. That’s more than three times the Department of Agriculture’s estimates for the average American. Parents in the Northeast anticipate this figure to be even higher at $996,000, versus parents in the Midwest, South and West, who expect to spend less at $667,000, $581,000 and $579,000, respectively.
Higher education is a priority for affluent families. Seven in 10 parents reported paying or planning to pay for their child’s college. When it comes to spending for K-12 education, only 36 percent of parents didn’t spend or don’t plan to spend anything to fund their child’s education.
Affluent parents in the Northeast have spent or plan to spend significantly more on average for their child’s grade school education with $96,800 on average versus $57,400 and $64,200 in the Midwest and West, respectively.
Cutting the Purse Strings: Expectations versus Reality
Half of affluent parents reported that they stopped, or plan to stop, supporting their children following college graduation, but first, four in 10 (39 percent) of respondents said they plan to help or helped their child get his or her first post-graduate job. That number jumps for affluent millennial parents, who are significantly more likely (86 percent) to have helped or plan to help their child get their first post-graduate job.
Despite planning to stop supporting their children post-college, 71 percent of affluent parents believe their child expected or will expect them to pay for big ticket purchases including undergraduate school (54 percent), a car (42 percent) and a wedding (40 percent). In reality, parents report they’re planning to pay more. Respondents indicated that they have helped or will help their child pay for any or all of their undergraduate school (70 percent), a car (51 percent) and a wedding (68 percent), significantly more than what they believe their children expect.
Emphasizing the focus on planning and preparing for their own retirement, two-thirds (66 percent) would choose to spend their money on themselves in retirement versus passing on an inheritance to their child. What’s more, while only one in five (19 percent) affluent parents indicated they do not expect to have to change their retirement plans in order to support their children, 66 percent of affluent millennials anticipate they will need to make an adjustment.
When it comes to education specifically, over half (54 percent) of affluent parents put a priority on saving for their own retirement versus their child’s education. Again, millennial parents buck the trend as 64 percent prioritize their child’s college cost over their own retirement.
Leaving a Legacy
Three quarters of affluent parents (71 percent) expect their children to be as wealthy or wealthier than themselves. To prepare their children for the future, 77 percent of affluent parents say they have talked to their kids about saving and investing. Other popular topics for discussion include earning and working hard (75 percent), budgeting and spending (70 percent), the family’s net worth (38 percent) and philanthropy and giving (36 percent). Perhaps that’s why most affluent parents (85 percent) do not consider their child a risk to their own financial wellness, such as being overly financial dependent on them or irresponsible with money.
Regarding their estates, almost all affluent parents (98 percent) plan to leave something for their children. Thirty-nine percent plan to leave assets to their grandchildren and 32 percent plan to leave something to charity.
Affluent parents use varying financial products to make their money work for them and to create a financial legacy for their children. Three in four (74 percent) are invested in the stock market. Most respondents use checking accounts (86 percent) and Roth IRAs/IRAs (76 percent). Although 72 percent of affluent adults have savings accounts, only 41 percent have a high-yield savings account.
“While Affluent Americans are spreading their wealth across several different investment vehicles, they are not necessarily managing their cash properly,” said Brownstein. “Every person, regardless of wealth, should have a savings account for emergencies, and ideally those should be high yield savings accounts so investors can earn on the cash they’re holding onto and achieve their long-term goals.”
For more insights from Personal Capital and to view past surveys, click here .
This report presents the findings of an online study conducted by Engine, among a sample of 500 parents ages 18 and older who have total household investable assets of $500,000 or more. These online interviews took place September 27-October 7, 2018.
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