Presented by Jonathan S Merckens, CFP
It probably feels like yesterday that you dropped your child off at college for his or her freshman year. Saying goodbye in a dorm room, surrounded by new bedding, electronics, and all the food that could fit in the mini-fridge, you may have shed tears knowing that your
almost-adult child would no longer be living under your roof.
Fast-forward to graduation, and your son or daughter may be contemplating his or her next step. Graduate school? Job search? Travel? Unfortunately, high debt rates and an unpredictable economy have limited grads’ options, and many are returning home after graduation. According to a recent study conducted by the Pew Research Center, 3 in 10 young adults between the ages of 25 and 34 have lived with their parents in recent years.
Meet the boomerang generation
Known as the “boomerang generation,” young adults today are apt to move out of the family home for a period of time before returning to live with their parents. Grown children may need or want to move back in with mom and dad for any number of reasons, including:
• Lack of money to fi nd a place on their own after college
• Job loss
• Desire to pay off debt or save money to make a down payment on a house
• A failed relationship or unsustainable living arrangement with a roommate
• Desire for security and stability
As more adult children move back home, families must get used to living under one roof again. Having a plan to manage the transition is essential, as it helps set expectations and ensures that both parents and grown children stay on course to meet their fi nancial goals.
Keeping your financial life on track with a full house
If your grown child is moving back home, the following tips can help you manage the financial aspects of your relationship:
• Be realistic. It’s natural to want to support your child as he or she searches for employment or saves money. But don’t exceed your financial limits. Your child should understand that it’s important for you to meet your own retirement and debt repayment goals and obligations.
• Map out a financial plan for your child. Help your child build better financial habits by working together to set a budget and savings goal. Discuss the amount of financial help you’re able to provide without jeopardizing your own savings. Also decide if your child will stay on your health insurance plan (most plans cover kids up to age 26).
• Set a target move-out date. Along with creating a financial plan, setting a move-out deadline will encourage your child to work toward concrete goals. If you don’t set a limit, he or she may stay at home longer than expected or delay working toward future plans. If your child needs to start paying off credit card bills or tuition debt, or is hoping to save money for a down payment on a house or condo, have a realistic discussion about how long it will take. To help everyone stay on track, some parents draw up a contract that both they and the child sign.
• Reassess the plan as necessary. Once you’ve made a financial plan and set a move-out date, ensure that your child is making progress toward those goals. Talk regularly about obstacles he or she has encountered and how you may be able to help with the job search. If your child hasn’t been able to fi nd a job, you may need to update the plan to reflect a more realistic time frame.
• Decide if your child will pay rent. Charging rent can help offset the costs of having another person under your roof. If you don’t need rent money to cover your bills, you might consider letting your child save that amount to use when he or she moves out. If your child doesn’t have a job or can’t afford to pay rent, exchanging work for room and board is an option. Your child’s duties might include shoveling snow, mowing the lawn, painting a room, or cooking a meal once a week.
• Consider your child’s debt. Parents are often conflicted about whether to help their children pay off credit card or education debt. If you do decide to help, create a contract that outlines what you expect in return. You could also waive rent for a couple of months if your child agrees to put any savings toward decreasing his or her debt burden.
Making the best of a not-so-ideal situation
Dealing with a full house again can be tricky, especially if you’ve lived in an empty nest for an extended period of time. But, by setting clear ground rules and fi nancial expectations, you can ensure a much smoother transition when a grown child returns home— and help him or her regain financial independence more quickly.