The Bank of Mom and Dad
Parental financial support is remaking the housing market, adulthood and the American Dream
The escalating cost of living in the U.S. is affecting younger generations, with rising prices outpacing wage growth and delaying financial independence. The "Bank of Mom and Dad" has emerged as a lifeline and a source of wealth creation, reshaping the American Dream and fueling a historic transfer of wealth that promises to widen inequality.
WASHINGTON — The cost of living is on millions of Americans' minds this year, following the inflationary period of the pandemic years. While the economy is in better shape now, based on economic data, prices for almost everything from groceries to housing to healthcare have increased faster than inflation and wages. So, people aren’t feeling relief in their everyday lives.
According to Ipsos polling, Republicans, in particular, are pretty pessimistic these days. Almost eight in 10 (78%) think the current economic situation in the U.S. is bad, while only 33% of Democrats agree. Ipsos found that almost half (48%) of Republicans said they worry the most about a total economic collapse in the U.S., compared to 22% of Democrats who said the same. It’s a major issue during this election year.
These economic challenges and concerns didn’t just pop up during the pandemic or post-pandemic years, although they may have felt worse. They aren’t attributable to one president or political party, either. The long-term trends of costs increasing faster than wages have slowly chipped away at the American Dream for two-thirds of a century, casting into doubt that anyone, regardless of their background, can achieve success and upward mobility through hard work, determination, and initiative alone. Today’s economic realities are delaying the ability of younger people, in particular, to achieve financial independence early in life and meet lifetime milestones like home ownership without some assistance.
Enter the Bank of Mom and Dad, an informal financial support system growing in places like the United States and the United Kingdom and, somewhat surreptitiously, eroding the idea of meritocracy. For example, if the Bank of Mom and Dad were a formal lending institution in the U.S. and the UK, it would rank among each country's top ten mortgage lenders. According to a 2022 YouGov survey, over a third of first-time home buyers (35%) in the U.S. received some support from their parents, putting beneficiaries well ahead of their peers.
What’s Going On?
The Bank of Mom and Dad has existed forever—it’s how generational wealth is created. However, since costs have been outpacing wage growth for a long time, especially in certain areas starting as early as the 1960s, it’s become more common for parents to lend a hand for a longer.
Health care, for one, is an ongoing issue in the United States. Research shows that increasing health insurance costs are eating up a growing proportion of worker's compensation and have been a major factor in flattening wages and increasing income inequality. So, even though wage growth is outpacing inflation now, it’s not being felt in workers’ bank accounts.
“Employers are spending more on insurance premiums instead of that money going to workers as wages,” says Dariush Mozaffarian, director of the Food and Medicine Institute at Tufts University and author of a study on the subject earlier this year. “These hidden costs of increasing health care are even worse for people of color and low-wage workers, leading to less wage growth, heavier insurance premium burden, and greater income inequality.”
Education has been a big issue, too. According to the Education Data Initiative, the average cost of attendance for a student living on campus at an in-state public four-year institution is $27,146 per year or $108,584 over four years. Out-of-state students pay $45,708 per year or $182,832 over four years. Private, nonprofit university students pay $58,628 annually or $234,512 over four years.
A Georgetown University Center on Education and the Workforce report found that the average tuition, fees, and room and board for an undergraduate degree increased 169% between 1980 and 2020, and it has continued to outpace inflation since then. The Urban Institute says that 70% of students who receive a bachelor's degree have education debt by the time they graduate, meaning that young people today pay more and hold more debt than their parents or grandparents did. The average borrower takes 20 years to pay off their student loan debt, meaning that some are over 40 years old before having a zero balance.
And then, of course, there’s the cost of housing. According to a report this year by Clever, a real estate data company, home prices have risen 2.4 times faster than inflation since the 1960s. In the last ten years, inflation has increased 31%, while home prices are up 63%. Mortgage rates more than doubled during the post-pandemic period and have recently cooled, but they are still roughly double what they were in 2021, meaning the cost of financing a home is even higher, too.
Inheritocracy
“The past few years haven’t been easy for many people, so it makes sense that a sizable percentage of parents believe their grown children still need support,” wrote Carissa Rawson, Glen Luke Flanagan and Robin Saks Frankel for USA Today. “And while some parents will make their aid conditional, nearly half are willing to keep providing with no strings attached.” Their survey research concluded that “65% of parents give their adult children (ages 22-40) some kind of financial support.”
According to recent data from the Pew Research Center, around 55% of young adults between 18 and 34 are not completely financially independent from their parents. This means a significant portion rely on their parents to some extent, with the younger age groups within this range being most likely to do so; only about 45% of young adults in this age range consider themselves fully financially independent.
In her new book, Inheritocracy: It’s Time to Talk About the Bank of Mum and Dad, released today in the UK, Dr. Eliza Filby, a generational historian and host of the It’s All Relative podcast, argues that “for anyone under 45,” life chances no longer correlate to meritocratic achievements, academic or otherwise. “We laugh at nepo babies of famous people, but to some extent we’re just like them with our Bank of Mum and Dad, and we’re embarrassed,” she told the Times of London. “But we need to talk about it more.”
Slow wage growth delays key life events for younger generations. In the U.S., homeownership rates for Millennials are lower than previous generations — the average age of a first-time home buyer is now 35 in the U.S., according to the National Realtors Association — with student debt and rising property prices making it difficult to accumulate savings for a down payment. Similar trends are seen worldwide, where young adults are delaying marriage, starting families and purchasing homes as they wait for financial assistance from their parents. Young people are stuck in a development rut.
“If you have a culture of over-parenting, that creates a culture that infantilizes older adults,” Filby told me. “It’s delayed adulthood; it’s reshaped the economy.”
Ironically, today’s Millennials are poised to become the wealthiest generation in history, not through work but through inheritance in the coming years. According to Northwestern Mutual, their wealth will be created by the Great Wealth Transfer, which will move $90 trillion between generations. Some GenX and GenZ will also benefit.
By 2030, Millennials will hold five times as much wealth as they have today. They’re “expected to inherit more than $68 trillion from their predecessors,” according to a Coldwell Banker report, and millions of new millionaires are expected to emerge, potentially increasing the total number of millionaires in the U.S. to about 70 million, or about one in five people, by that time.
While the Great Wealth Transfer promises financial relief for some, it also risks widening the global wealth gap, meaning inheritances will likely reinforce existing inequalities. This phenomenon is where wealth concentration among the elite continues to increase. Governments worldwide are grappling with how to manage the redistribution of assets, looking at raising the estate tax threshold or implementing wealth taxes to reduce inequality.
“More and more of us are defined by our parental support than our own efforts,” Filby said. “One out of every ten people will inherit more than half of what an average person earns in a lifetime. So forget the American Dream or the rags to riches stories or the idea of meritocracy. Be nice to Mom and Dad.”