The Incredible Financial Squeeze on the Sandwich Generation

September 1, 2015

GenerationOur culture is built on the idea that one generation takes care of the next. Parents take care of their children, who then grow up and take care of their own children. It is expected that the older generation not only provides emotional support but also bears the expense of raising, educating and transitioning their children into adulthood. Yet today, many middle-aged Americans have begun to not only support their children but their adult parents.

Known as the sandwich generation, they are a growing group of middle-aged Americans finding themselves contributing financially to three different generations. According to the Pew Research Center, 15% of middle-aged adults provide ongoing financial support for both their children and aging parents.1 And as the baby boomer generation moves into retirement, this number will surely grow.

While recent articles have focused exclusively on the generation stuck in the middle, I believe there is a larger issue at hand. We may be experiencing an overall shift in the family dynamic in America. As more families come to terms with this new paradigm, I believe it is important to understand not only the financial pressure, but the emotional strain each generation is under.

Young adults: The financial crisis of 2008 hit millennials hard. Many were unable to find good, permanent work after graduating college, and while many have recovered along with the economy, their delayed entry into the workforce may have postponed their entry into adult life. According to U.S. Census Bureau data, 36% of the nation's young adults aged 18 to 31 live at home, a steady increase from years prior to 2007.2 Many feel guilty over their financial dependence on their parents while lacking the confidence to strike out on their own.

The "sandwich" group: Overwhelmed and exhausted, this group feels the financial pressure and anxiety of their extended caregiver roles. The sandwich generation feels that they have no time for themselves, and while many claim to be able to provide for both their parents and children, they may be doing so at the detriment of their long-term financial health. As more money is shifted away from savings to providing support, this generation may find that they also need support in their retirement years.

Aging parents: Like millennials, the financial downturn negatively impacted many baby boomers. Investments built and saved for over a lifetime depreciated significantly overnight. And while the economy has recovered, the impact of having to cash out of their investments at a low point in the market may have left their portfolios depleted. A strong desire to be productive and not seen as a burden may contribute to a greater feeling of guilt. 

By considering the impact and needs of each generation, a financial advisor can come up with a plan that can benefit all. Taking a long-term view and providing objective counsel, an advisor may be able to reduce the financial burden and emotional stress weighing on all three generations.

1 - Kim Parker and Eileen Patten, "The Sandwich Generation: Rising Financial Burdens for Middle-Aged Americans," Pew Research Center. 2013.

2 - Richard Fry, "A Rising Share of Young Adults Live in Their Parents' Home," Pew Research Center, 2012.