There’s no two ways about it… according to the latest numbers from the Federal Reserve’s Report on the Economic Well-Being of U.S. Households, the number of American parents who report they’re doing “at least okay” financially has taken a double-digit hit over the last two years.
It's a sharp movement, and for many parents, a movement in the wrong direction. By all appearances, parental financial confidence had been on a steady rise since 2015 (lagging just behind the financial confidence of all other adults) and had seemingly recovered from a one-time pandemic-era hit. That changed in 2022, and, by all appearances, 2023 only accelerated the trend.
What’s Behind the Drop in Financial Confidence?
Today’s parents take parenting seriously! About 87% say they treat the role as “one of the most important” or “the most important” things they do, and the majority (64%) believe they’re doing a very good or even excellent job. That said, most (62%) also report that the job is “somewhat” or “a lot” harder than they’d believed it would be.1
Costs are likely a big part of that difficulty. The most recent USDA Expenditures on Children by Families annual report (2015) reported the estimated average cost of raising a child from birth to age 17 was $233,610. Assuming these expenses roughly tracked overall inflation (which they may not have, given the big jumps in healthcare, childcare, food, and housing costs in recent years), that expense is now over $300,000. That’s a lot, especially considering that this eye-popping number doesn’t even include the cost of college!2,3
It’s no wonder that older parents are now helping their adult children more than ever. According to a recent survey by the Pew Research Center, most older parents (59%) report helping their adult children in the past year despite the fact that many of these adult children are now parents themselves.4
Possible Relief on the Horizon?
Here’s the good news–financially savvy parents are not out of options! Beyond the financial basics of budgeting, saving, investing, and smart debt management, the SECURE Act 2.0 changed the rules on tax-advantaged 529 educational savings plans. Parents can now use these funds for a big swath of qualified educational expenses, including everything from private kindergarten to college to trade school, dorm rooms, textbooks, technology, and much more. Both parents and grandparents can contribute to 529s.
More good news–parents are not out of options with their 529s if their children decide against higher education. In fact, they can make tax and penalty-free withdrawals into a Roth IRA retirement plan. Just keep in mind that Roth IRA contributions are phased out for taxpayers with adjusted gross incomes (AGIs) above a certain amount.5
On the political horizon, there may be another bipartisan opportunity to increase the Child Tax Credit. Details, at the moment, remain unresolved, but most agree that this could be a critical measure to support parental financial confidence.6
Final Thoughts
If you’re a parent or grandparent thinking about your finances, give us a call so we can talk about what’s on your mind. Hopefully, the recent hit in parental financial confidence is a blip, and the trajectory returns to an upward swing! In the meantime, extend a little understanding to the parents in your life, or if you’re a parent, know that you’re not alone.
1. Pew Research Center, Parenting in America Today, January 24, 2023
2. USDA Food and Nutrition Service, 2015 Expenditures on Children By Families, January 9, 2017
3. CPI Inflation Calculator, 2024
4. Pew Research Center, Parents, Young Adult Children and the Transition to Adulthood, January 25, 2024
5. Investor.gov, 2024
6. CATO Institute, Both Candidates Support Child Tax Credits, but Their Approaches Differ., October 14, 2024