Understanding financial support decisions between parents and adult children

Project Overview

While there has been much attention to the impending wealth transfer from Baby Boomers to Millennials via inheritances, living parents are already transferring significant financial resources to their adult children—in ways that remain largely invisible to financial services providers. I designed a qualitative interview study, leading a team of 21 research assistants to uncover how upper-middle-class American families navigate financial support to adult children: how they structure these arrangements and why they choose specific approaches. Understanding these family dynamics—and how generations remain financially intertwined well into adulthood—is crucial for financial services companies serving either generation (or both).

Research Approach

This study focused on upper-middle-class families—a key customer segment affluent enough to provide substantial support, but lacking the formal wealth transfer tools (e.g., trusts, family offices) used by the ultra-wealthy. My sample included 47 U.S. college graduates (ages 27-33) and 29 of their parents (N=76).

As the American upper-middle class becomes increasingly diverse, financial services companies need to understand differences in how various groups approach financial relationships between generations. To explore these differences, I recruited upper-middle-class families from three demographic groups: native-born White, native-born Black, and immigrant ethnic Chinese families.

I used an innovative paired interview approach, conducting separate, confidential interviews with young-adult children and parents from the same families to capture both perspectives on the same financial relationships. I hired research assistants fluent in Mandarin and Cantonese to interview immigrant parents in their preferred language. After completing the interviews, and collecting additional demographic data through Qualtrics surveys, I led the research team in analyzing the data to identify patterns across families.

Key Insights

1. Independence Dilemmas. The American cultural ideal of financial independence as a marker of successfully becoming an adult created tensions in families. Even when parents had resources and both generations believed support would be beneficial, parents sometimes withheld financial support, and—defying conventional economic rationality—young adults sometimes avoided or rejected it.

2.  Independence Performances. I discovered that families didn't simply choose between providing support or prioritizing independence. Instead, they sometimes created financial arrangements that simultaneously delivered support and demonstrated commitment to independence—what I call "independence performances." They took five main forms:

·      Parent loans: Parents loan money to children (repayment may or may not be required).

·      Intra-familial transactions: Parents charge children for something valuable, such as housing (i.e., rent) or a car.

·      Split payments: Parents and children split the cost of an expense.

·      Work requirements: Parents require children to have a job to receive support.

·      Planning exercises: Parental support is preceded by a financial planning exercise (e.g., creating a budget).

These arrangements provided a way for adult children to maintain their desired identities as independent, responsible adults while still benefitting from support. Simultaneously, they enabled parents to balance competing desires to support their child's success and well-being, on the one hand, and to foster their child's independence as an adult, on the other.

3. Demographic Differences. Immigrant families and native-born families approached support differently. In native-born families (both Black and White), parents and adult children generally shared the adult child’s financial independence as a goal—the sooner, the better. Both generations valued eventual financial separation, making independence performances a collaborative means of addressing shared tensions.

Immigrant ethnic Chinese families showed different patterns. Parents typically prioritized family wealth-building through resource pooling (avoiding third-party costs such as rent and mortgages). Adult children, however, sometimes wanted more independence than parents expected of them, valuing autonomy and privacy. This led some adult children to limit their parents’ support, imposing boundaries their parents didn’t require.

Applications for Financial Services

1. Multi-generational product design: In the upper-middle class, parents and adult children often have financially intertwined relationships well into their 20s and 30s. Financial products should accommodate multi-generational dynamics, not just individual account holders. Accounts that facilitate parental contributions while maintaining a degree of separation and privacy for the adult child will help families balance desires for support and independence.

2. Preserving narratives of independence: Even parents who provide support often view financial independence as the ultimate goal, and so do their children. Product features and marketing should frame parental support as an investment in the adult child’s future financial independence while portraying adult children as autonomous, responsible adults.

3. Cultural segmentation: Ideas about independence vary across demographic groups. The goal of financial separation between generations is likely to be less salient for immigrant parents from cultural contexts such as East Asia, where intergenerational financial pooling is the norm. However, their children, raised in the United States, may have adopted more individualistic American perspectives. Messages emphasizing collective family wealth-building may appeal more to the parent generation, while messages emphasizing individual financial independence may appeal more to their children.