Why City Dwellers Rely on the Bank of Mom and Dad More Than You’d Think

Over the past several years, a new trend has emerged in how Americans finance their lives: more and more young adults, as well as even older age groups, are turning to the Bank of Mom and Dad for loans. This trend, once thought to be an aberration, has now gone mainstream, particularly among city dwellers. But why is this so? Let us examine the driving forces and the reasons why so many Americans, and city residents in particular, are depending on their parents for financing more than they had anticipated.

The Rising Cost of Urban Living

Quite possibly the strongest justification for dependence on the Bank of Mom and Dad is the increasing cost of living, particularly in large cities. Based on recent research, cities such as New York, San Francisco, Los Angeles, and Washington, D.C., are extremely costly in terms of accommodation. As rent keeps going up and the cost of buying a house gets further and further out of reach for young people, many are struggling to be able to become independent.

In these cities, the average rent on a one-bedroom apartment is over $2,000 per month, with no indication of tapering off. Add to that the expense of transport, food, and student loan repayments, and it’s little wonder that more and more young adults are turning to mom and dad for assistance. Home ownership or renting a place alone is but a far-off dream. Living with mom and dad or getting regular allowance payments has been the practical reality.

The Burden of Student Loan Debt

The price of education has increased exponentially over the last several decades. The average amount of student loan debt in America is now well in excess of $30,000, and it’s not unheard of for graduates to owe even more. For young people who are attempting to establish their careers, these student loans represent a crushing financial burden.

In big cities, where wages are not high enough to keep up with the astronomical standard of living, the majority cannot make ends meet and repay their student loans. In that scenario, the Bank of Mom and Dad usually comes to the rescue to provide a lifeline of money to cover monthly bills, loan repayments, or unexpected crises. Some even co-sign loans for their kids so that they can more easily obtain credit or a mortgage when they are older.

Job Market Challenges and Static Wages

A second important force powering the growth of the Bank of Mom and Dad is the status of the labor market. Although the American economy has experienced spells of growth, salaries have not risen commensurate with inflation, especially in cities. The Economic Policy Institute found that salaries for young adults have been stagnant since the early 2000s. However, living costs, health, and other essentials have increased exponentially.

In the cities, competition for employment is fierce, and even with a university degree, numerous graduates are finding it difficult to secure well-paying jobs. Part-time work and internships usually do not pay sufficiently to enable individuals to meet basic living costs. Thus, most young urban dwellers depend on their parents for financial support, particularly when switching jobs or when underemployed.

Changing Family Structures and Cultural Expectations

Financial independence was once part of the American Dream. The expectation was that young adults would leave their parents’ households, find employment, and begin supporting themselves in their late teens or early twenties. Cultural values have changed. Parents today are more inclined to assist their children financially as a means of enabling them to weather difficult economic conditions.

In addition, family dynamics have shifted, and more individuals are remaining near home or returning to live with their parents after college. Due to increased divorce rates, fewer young adults are looking to their immediate family for financial stability only. Many have returned to live with their parents on a temporary basis while they gain stable jobs or continue their education.

Parents, particularly middle- and upper-middle-class parents, have a desire to help their kids out financially. It is an emotional as well as financial investment in the future well-being. Whether it is helping with a down payment on a first home, college payments, or simply a buffer for life’s unexpected twists and turns, the Bank of Mom and Dad has become a part of family financial planning.

A Trend Toward Multi-Generational Housing

Yet another trend that has fueled the increase in financial dependence on parents is the increasing trend toward multi-generational housing. In 2020, over 64 million Americans resided in multi-generational households, the most in more than a century, says the Pew Research Center. Cities, with their high-cost housing markets and spatial constraints, are witnessing more and more families opting to reside together under a single roof.

Though it might sound like a blast from the past, this can be a highly realistic response to the financial crunch now. Being able to remain with relatives or parents can cover rent and utility bills for young adults, paving the way to the possibility of saving money first prior to setting out on their own. It can also offer them emotional support and a better sense of connection. Parents who assist their children in this manner might also discover that it works to their own financial advantage, particularly when it comes to mutual obligations such as childcare or eldercare.

The Impact of Technology and Lifestyle Changes

The growth of the gig economy and telecommuting has also served to enhance the heightened dependence on the Bank of Mom and Dad. Younger people are more inclined to freelance or work part-time jobs with non-traditional income sources. Remote work provides flexibility that many enjoy, but this can also translate into fewer assurances of a steady paycheck. Having to juggle side hustles and short-term contracts with rent/mortgage payments typically means additional help is needed.

In addition, consumer culture and the impact of social media have also fueled the need for experiences and material possessions even more. Young people, especially urban young people, must keep up with the ideals of their peers’ flawless lives on Instagram made up of exotic getaways, newest phones, and designer brands. Parental support in such cases can reduce the financial pressure that comes with living this kind of life.

The Bottom Line

Although the Bank of Mom and Dad has been a family finance tradition for decades, today it’s more essential than ever. The cost of living in a big city, the burden of student loan debt, the tough job market, and shifting social norms have created an environment where increasingly more young adults are turning to their parents for financial assistance.

Since this trend holds true, it is necessary that both children and parents have open conversations about money, budgeting, and financial independence. Though parental support can definitely reduce the strain, young adults must also learn how to prepare for long-term financial security and independence. The Bank of Mom and Dad might be a scarce lifeline today, but the objective always has to be to repay those loans down the road — not so much financially, but emotionally, by having a strategy for financial independence in the future.

The Bank of Mom and Dad is perhaps changing, but for a lot of young Americans, it is a required piece of the puzzle — and for good or ill, it’s not disappearing soon.