Financial independence. What is it? FIRE folks would say “Being able to live on your investments/retirement savings without needing to work.” The rest of us would probably say not getting financial assistance from anyone.
Well, the Pew Research Center has a slightly different definition. It bases “financial independence” on being at least 150% of the poverty line, according to a CNBC article.
Interesting. I guess the rationale is that you would probably qualify for government assistance below that amount? It’s not really made clear.
Still, not everyone who qualifies for benefits takes advantage of them. So I find it interesting that the study is calling low-income folks financially dependent. Wouldn’t it have made more sense to at least ask whether the survey respondents were receiving aid from the government or family members?
But it didn’t. So as a result, it found that, of 22 year olds (the age at which 64% of Americans think people should be financially independent), only 24% were independent.
But for all my misgivings about the definition of “independent,” there may be something to the Pew’s idea — at least for younger adults. Because 45% of people ages 18 to 29 (who had at least one living parent) received at least some help from them in the past year. Meanwhile 59% parents reported helping their adult children at some point in the last 12 months.
Of course, this age range includes college students, so perhaps the rate of help received shouldn’t be that startling. Plenty of college-age kids receive financial assistance from mom and dad.
Still, is it too much? Fifty five percent of Americans seem to think so — though unsurprisingly, young adults disagreed with this the most. Only 38% of them said that parents help their kids too much. Also unsurprisingly, the older the people got, the more likely they were to say that parents help their kids too much.
A few years ago I would have said the same thing: Too many parents are coddling their adult children. But I have since realized that I live in a bubble: no car payment, no student loan payment, a low mortgage and a well-paying job. Things seem easier to me in general because things are easier for me. It’ s a dangerous line to blur when judging other people.
Most younger folks aren’t as lucky as I am. They struggle with basic costs, as born out by their answers in the survey. They mainly said that the money went toward mundane expenses: rent/mortgage, household expenses and medical help. It doesn’t sound like they’re putting the funds toward a night on the town.
And it’s not surprising that they’d need help with such basic expenses.
Heck, just the average student loan and car payments combined would be nearly $900 a month. That’s $10,800 a year — nearly 1/4 of the average wage in the U.S. (about $47,000), which a lot of 18-29 years olds aren’t even making yet.
Granted, hopefully people making less than $47,000 a year are driving older cars with lower or no monthly payments. But then there’s the cost for repairs, which will be more common on older automobiles. Those will eat up a chunk of your income too.
No, I think the fact that the money is going toward basic expenses speaks to the help being truly needed — to the idea that parents aren’t helping their kids too much.
Could the kids stand to eat out a little less or make do with an older phone? Sure, some of them probably could and should.
But if personal finance blogs (and their readers’ comments) are any indication, plenty of younger folks are living carefully and still struggling to get by thanks to low wages and/or high costs of living. The national median rent for a one bedroom is $960. There goes another 1/4 of the average earner’s wages.
Interestingly, there’s a disconnect with the parents of young adults, according to the Pew Research study. While 61% said that parents are doing too much for their kids, only 28% felt that they themselves were doing too much. I guess that makes sense — self-reflection isn’t humanity’s strong suit (and blaming others often is) — but it’s still a startling divide.
So what can we take from all this?
Well, the definition of financial independence is pretty murky. (Almost ask murky as the definition of middle class.) But it seems the main takeaway is that young people in this country are struggling — perhaps even more than previously suspected.
So it seems that financial independence simply isn’t feasible for a fair number of Americans, at least as their lives stand right now. And that’s a pretty sad and scary thought.
Are you financially independent? What’s your definition?