Adult children and their parents struggle to communicate on key financial topics that include retirement planning, providing care for elderly parents and inheritance strategies, according to a new study by Fidelity Investments.
Fidelity’s Intra-Family Generational Finance Study analyzed the levels of disagreement and miscommunication between parents and their adult children on a range of sensitive topics, and found that adult children are not only anxious about their own finances, but also their parents’ future health, retirement security and estate plan. The study revealed that 97 percent of parents and children disagree on whether a child will take care of his or her parents if they become ill.
Major miscommunication also exists when discussing inheritance and estate planning. Children underestimate the value of their parent’s estate by an average of more than $100,000, the study found. In addition, neither side is effectively communicating about retirement readiness. As a result, 24 percent of adult children believe they will have to help their parents financially in retirement, while 97 percent of parents say they will not need help.
“Given the economic pressures facing families today, it’s troubling that detailed conversations are not happening, especially among those in the sandwich generation who may be grappling with competing financial priorities ranging from planning for their own retirement and paying for a child’s college education to dealing with eldercare, estate planning and retirement challenges with their parents,” said Kathleen A. Murphy, president of personal investing at Fidelity. “Whether it’s a parent facing a shortfall in retirement income or an adult child weighing the tax implications of an inheritance, too often discussing these issues is considered taboo within families, but real emotional and financial consequences emerge when such conversations don’t happen or lack sufficient depth.”
While approximately 95 percent of parents and their adult children say at least some conversations have taken place, significant gaps in communication were evident in a number of areas, including living in retirement, eldercare and estate planning. In all cases, very few adult children believe the conversations were very detailed.
While 89 percent of adult children and parents agree that health and eldercare is an important topic of conversation, 63 percent disagree on the level of detail that has been covered to date. Only 10 percent of adult children believe the conversations were very detailed.
Nearly nine in 10 (89 percent) adult children and parents agree estate planning is an important topic to discuss, but 70 percent disagree on the depth of the conversations that have taken place and only one in five (19 percent) children say the discussions have been very detailed.
Sixty-five percent of adult children and parents agree that discussing retirement readiness is an important topic, but 72 percent disagree on the level of detail that has been covered to date; and only 11 percent of children believe the conversations were very detailed.
When asked who they are comfortable with when talking about their financial situation, the study found that both parents (68 percent) and their adult children (60 percent) feel more comfortable discussing with a third-party financial professional than to each other.
While 94 percent of adult children and their parents agree it is important to have frank conversations about wills and estate planning, eldercare or covering retirement expenses, there are significant barriers to even starting these discussions within families. The top barrier noted by 30 percent of parents is they don’t want their adult children to overly rely on a potential inheritance. And for adult children, 40 percent say the top barrier is that they feel like it’s not any of their business to ask their parents about these topics.
The study also found that the timing of these discussions is a barrier. Only 34 percent of parents and their children agree on the best time. Parents are more likely to cite when they near or enter retirement (37 percent) as the right time, while children indicate that they’d like to have a conversation before their parents retire or have health issues (37 percent).
The study also validates the assumption that taking the time to have more detailed conversations can dramatically increase peace of mind, reduce anxiety and foster additional discussions. When adult children and their parents had detailed conversations about these critical topics, 83 percent agreed the other was willing to talk about wills and estate planning, eldercare or covering retirement expenses.
The study also uncovers the overwhelmingly positive impact of having these conversations about estate planning. For example, peace of mind of parents jumps from 61 percent to 91 percent when comparing those parents who have not had detailed conversations with their adult children versus those who have. Additionally, parents who have had detailed conversations with their adult children feel significantly more at ease about their children’s financial future – 68 percent vs. only 30 percent – among those who have not had detailed conversations.
This lack of communication may also have an adverse effect on adult children and their feelings about their own retirement readiness. “Anxious” is the top feeling they cited (36 percent) when describing their own retirement.