It looks as though more parents are increasingly paying for the transportation needs of their (sometimes very old) children.
Thanks largely to abandoning the important job of parenthood, a Bank of America survey a discovered small portion of adults between age 23 and 37 are now able to put away legitimate savings. However, the prevalence of student debt, low-paying jobs, and an increased cost of living has left many to continue scrimping and saving. In fact, most Millennials under 24 had less than $1,000 in their savings accounts, with nearly half having no savings at all. The former was also true for older members of the same generation. On average, it’s presumed that Millennials are earning 20 percent less than their Boomer parents at the same stage in life — despite being better educated, overall.
That’s causing future issues for the automotive industry. When Bankrate surveyed Americans to get their financial priorities on record last month, 23 percent of respondents specified that student-loan debt directly influenced their decision to delay purchasing a new car. Considering both monthly payments are frequently set to the tune of hundreds of dollars, that would make a lot sense.
However, the problem is pinning down how many parents are still footing the bill so their kids can drive. While Automotive News provided heaps of anecdotal evidence, concrete statistics remain elusive. The outlet noted that automakers and other agencies gather demographic data that measures the number of households with children in them in an attempt to keep tabs on who is driving, but nobody keeps track of the ages of those children. But there are metrics that can give us a decent idea of how broad the issue has become.
From Automotive News:
Vehicle purchases and student loans — whether for themselves or their children — are two of the biggest contributors to increasing debt for older Americans. People 60 and up had total debt of $615 billion in 2017, according to TransUnion, which is less than millennials owe on student loans alone.
Americans 60 and older held 21 percent of total automotive balances in 2017, vs. 12 percent in 2010, TransUnion said. Auto loans now account for $246 billion, or 40 percent, of their total debt.
For all Americans, fast-rising student loan debt is sapping income they could have used for other purposes, including a vehicle. More than a quarter of millennials with student loan debt have delayed buying a car because of it, according to a survey by Bankrate.com released in February, with the Midwest as the region most likely to cite loans holding back a vehicle purchase.
Since the recession, used-car purchases from individuals over the age of 55 have consistently increased while the inverse is true for shoppers under 34. Between 2008 and the start of 2018, older buyers went from comprising 20 percent of used-vehicle registrations to just under 35 percent. Meanwhile, those under 34 went from being around 25 percent of the used market to just 16 percent.
While the issue is frequently painted as a signal from younger generations that they’re less interested in owning a vehicle, the truth is a little more complicated. Car ownership has become more expensive and, with less disposable income, younger buyers simply cannot shoulder the burden. According to transaction data from Cox Automotive company Dealertrack, the average monthly payments for a new vehicle has increased to $533 in the last five years. That’s about $40 a month more per loan and $70 more for a lease.
“[Millennials] are far more likely to tell us that owning a vehicle has just become too expensive,” said Isabelle Helms, vice president of research and market intelligence at Cox Automotive. “We know their financial situations. We know they are plagued with debt.”
However, for most Americans, having a vehicle remains mandatory.
“We live in a country where you have to have a car. Uber is not an affordable alternative. You can’t get an Uber every day to your job,” said Jonathan Banks, general manager of vehicle valuations at J.D. Power. “The majority of our population is still in a [more] rural setting.”
That leaves many Millennials’ comparatively wealthy parents to foot the bill for their transportation needs. Dina Wilson, general manager and finance director of Timbrook Kia in Cumberland, MD, told Automotive News that the prevalence of parent-and-child customers at her store has clearly increased. “I’ve seen a lot more of those than what there ever used to be,” Wilson said. “As finance managers, we all need to be more aware of who our customer is in front of us.”
In the end, it would appear that we have an unusually large portion of the population purchasing used vehicles (rather than new ones) for their adult children who cannot afford to do it themselves. While this is fine as a temporary solution to a particularly bad recession or a period of time where their offspring is unemployed, lackluster incomes and overwhelming debt makes us wonder how many of these people will ever be able to purchase a new vehicle. And what happens to the market when those Boomers finally become too old to help their kids?