A Generation of Debt, Part III: Mature Families and Empty Nesters

With children in high school or college, or even starting careers as young adults, today's mature families and empty nesters have successfully navigated the early years, a time when their children were young and money was tight. These parents aged 45 to 64 have worked hard to establish a stable and enjoyable life and are looking forward to their future retirement. But this generation of debt faces unique financial challenges.

Living with Debt

Dr. Robert Manning, professor of finance at the Rochester Institute of Technology, outlines the issues surrounding this established generation in his report (Lending tree.com; 2005). As they look toward retirement, mature families and empty nesters face conflicts between supporting adult children vs terminating their offspring's financial dependency; saving for college vs saving for retirement; and eliminating outstanding debt vs planning for imminent retirement needs.

Generation Deprivation

Mature families and empty nesters grew up listening to stories of self-sacrifice, rationing, and deprivation from their parents and grandparents. The tenets "live within your means" and "save for a rainy day" shaped their personal saving and spending patterns. Because mature families and empty nesters witnessed these financial values firsthand as children, the Puritan philosophy of thrift still reigns among these parents, especially when it comes to purchases for themselves, according to Manning. Yet conservative spending becomes lost in the desire to provide for their children, particularly as the line between wants and needs is blurred.

Even though these parents may have been raised with a lot less than their own children, mature families wish to provide a life without any want. Parents who give in to their children's increasing demands for material possessions foster a sense of entitlement, as "keeping up with the Jones'" becomes more and more expensive. This departure from frugality stems from competitive consumption pressures, which considerably raise costs. As a result, parents inadvertently fail to teach their children the value of money because of their inability to say "no" to material demands. More importantly, parents neglect to pass on traditional financial values that will only help children to become self-sufficient adults.

In Manning's study, many empty nesters readily admit to and blame themselves for this unsuccessful transmission of thrift and self-sacrifice. In fact, many empty nesters still struggle with the persistent financial demands of their adult children, who are still financially reliant on their parents. The lapse in financial values between generations affects mature families and empty nesters, contributing to lower household savings and higher debt, which only adds further stress to their longterm financial goals and retirement.

College vs Retirement

Saving for retirement and their children's college education at the same time is a challenge many mature families face, according to Manning. Paying for college comes second only to unexpected medical conditions as the most significant financial reason that hinders retirement savings. For families of modest means, parents must choose between funding their children's future or their own.

Many mature families confronted with this choice help their children handle the soaring costs of higher education and put their own retirement funding on hold. The assumption is that once the kids are out of college, they will aggressively save; however, this is not often the case. As adult children continue to turn to their parents for financial help—whether out of need or want—parents' retirement funds are left vastly underfunded.

Not only do both mature families and empty nesters put their children's financial needs ahead of their own, but they increasingly take on the added responsibility of caring for their own aging parents. Caught in the middle between the financial demands of children and parents, this sandwich generation has limited liquid assets for their retirement. Rather than adequate savings, the bulk of their net worth instead is tied to their home's equity, which has doubled in value over the last decade and even quadrupled since the mid-1980s.

To facilitate retirement needs, housing is now seen as an investment in the absence of liquidity. This changing view of housing is a significant psychological trend, according to Manning. Whereas at one time owning a home fulfilled a need, housing is now viewed as a combined residence and investment. Retirees can sell their home for a profit and relocate to less expensive states if necessary, at the cost of severing family and social ties.

Of course, empty nesters can only use their home's equity if they own it outright. Many struggle to retire their mortgage and other consumer debt obligations during their final work years of full-time employment.

Eliminating Debt

Unlike college-age and adult children, empty nesters and mature families do not rely on credit for emergencies. But if you think that debt is limited to the irresponsible ways of twentysomethings, consider this: Debt only increases with age. According to Experian, while the average debt for ages 18 to 29 is $8636, it is $20,157 for ages 50 to 59. Debt only begins to taper off as adults reach retirement age.

Although mature families will likely add to their debt until their children become independent, empty nesters are primarily concerned with becoming debt-free in order to maximize retirement assets and prepare for future medical expenses, according to Manning. Retirement anxiety is one of the most significant characteristics of empty nesters, who aggressively try to eliminate mortgages, loans, and credit cards while simultaneously stashing away as much money as they can for the future.

Nevertheless, saving is particularly difficult for empty nesters because of their lower earning capability. According to the US Census Bureau, the median household income for ages 55 to 64 was $50,400 in 2004. Yet the median household income for ages 45 to 54, the age range of many mature families, was $61,111. Manning says that this earning gap can be attributed to the relatively lower educational attainment of empty nesters in addition to the erosion of unionized blue-collar jobs, voluntary and involuntary early retirement due to layoffs, and healthrelated employment interruptions.

As once-guaranteed benefits continue to disappear, future retirees will increasingly become dependent upon their own savings capabilities and individual investment choices. These challenges leave many empty nesters with no choice other than postponing retirement until after age 65. Some participants in Manning's study even plan to work part-time in "retirement" to supplement their income.

To compound empty nesters' financial issues, children and grandchildren will continue to be a strain on their resources even after retirement. Adults in both groups blame irresponsible lending practices of credit card companies and other financial institutions for increasing consumerism and the indebtedness of younger groups. Meanwhile, more than half of the parents in Manning's study did not save for their children's college education. Because college graduates are laden with student loan debt, they recurrently rely on their parents for financial help. Thus, a vicious cycle of debt continues as each generation of debt points the finger at the other.