For the vast majority of family financial decision makers, children come before they do; paying for the kids’ education ranks far above saving for future medical expenses or retirement.
As a result, only three in 10 American parents are confident that they are adequately preparing themselves financially for retirement. These are among some of the key findings released in the second nationwide study in Massachusetts Mutual Life Insurance Company’s State of the American Family series.
“As a nation, we are becoming incredibly diverse in terms of age, ethnicity, attitudes and experiences; you no longer can put a face on America, because there are so many different faces,” said John Chandler, senior vice president and chief marketing officer, MassMutual.
“The State of the American Family research platform helps foster a deep understanding of today’s diverse families, trends that may shape them in the coming decade and factors that affect their dynamics and interactions on matters financial and otherwise.”
Despite parents’ insistence on paying for their children’s education, the study found that half of those who set this as a priority say they won’t have the money needed to fund a future college education, nor do they know how much they need to save.
“When I talk to families about their financial planning needs, we cover plans to pay for children’s college by asking how much of their child’s education they want to cover, what percentage of their income they want to save for it, and whether or not they think their children will receive any financial aid,” explained Kevin Paasch, a MassMutual assistant general agent and sales manager at Commonwealth Financial Partners in Virginia Beach, Va.
“Then when we discuss retirement, I ask if they plan to get any financial aid to help with retirement. I get puzzled looks, but the point is made, and we start reprioritizing their financial goals.”
“Planning for your children’s education is a critical need, but prioritizing this above your own financial future may be risky,” warned Paasch.
“It’s clear that today’s American family, regardless of how they are defined, is struggling with reaching their long-term financial goals and managing their finances day-to-day,” said Chandler.
“As a father of two teenage sons at a time when the country slowly climbs out of a deep recession, I feel a personal and professional responsibility to help people take that first step toward making smart financial decisions for themselves and their families.”
Other key themes of the research include:
It starts with the foundation
Even though some Americans have gained confidence in their ability to manage money, many more still struggle with basic financial literacy; 38 percent now say they are strongly confident about managing money, up from 30 percent last year. About half are moderately confident in their ability to manage money, yet only 28 percent actively seek ways to educate themselves on finances.
Secure Retirement May be a Pipe Dream for Many
Nearly four in 10 (39%) Americans have developed a plan for their retirement saving. Among women, it’s only about three in 10 (31 percent), despite the fact that women can expect to spend more than 50 percent more time in retirement than men. Perhaps this is why more than six in 10 (63%) of those surveyed plan to work part-time during their retirement
Taking Care of Mom and Dad
Americans are not just preparing for their own needs. Close to a quarter is planning to care for their parents financially as they get older. Additionally, most are mindful of the stress that results from being sandwiched between children and parents: 71 percent say it’s important that their children aren’t burdened by taking care of them when they’re older.
Effects from the Recession Still Lingering
The economic downturn affected families’ finances in unforeseen ways, and many are still feeling the effects of the aftermath. Only 19 percent of those surveyed are satisfied with their current financial situation and close to three in 10(28%) have delayed purchasing big items because of the recession.
There may be a silver lining: 60 percent of Americans are careful not to accumulate debt, up from 50 percent last year, and 70 percent want to be actively involved in decisions regarding their finances.
Hope for the Next Generation
Less than 10 percent of those surveyed learned about managing finances from their elders, and a quarter wish that their parents taught them more about money. However, Americans may be trying to change the patterns from the past: close to eight in 10 (78%) think it’s important that they educate their own children on finances to ensure a strong economy in the future. This sentiment is especially stronger among women (84%) than men (71%).
“It’s important to stay close to the changing expectations and needs of American families to help them stay or get back on track financially through targeted education and careful planning, so they can achieve financial security,” said Chandler.
“Knowledge and planning can help many avoid pitfalls, yet our study shows that fewer than three in ten American parents are actively seeking ways to educate themselves on their finances. We clearly have a lot of work to do.”