Do You Have Adult Children Living at Home?
With more young adults moving back home, it's important to set some financial guidelines before they get too comfortable.
The job market is strong and the economy is humming, but your millennial child is moving back into his or her old bedroom. What’s up? According to a recent study by Pew Research, 15% of Americans age 25 to 35 were living in their parents’ homes as of 2016. That’s five percentage points higher than the share of Gen Xers who lived with their parents in 2000, when they were in the same age group.
“Parents need to recognize that their children are facing a very different world than they did at the same age,” says Patrick Payne, a professor of finance and financial planning at Western Carolina University. Faced with heavy student loan debt, stagnant wages and high housing costs, many millennials have no choice but to move in with their parents. According to American Funds’ Wisdom of Experience survey, 20% of millennials work primarily in the gig economy, meaning they may not be able to depend on a steady paycheck to fund housing costs.
While your parental instinct might be to provide support indefinitely, you’ll be doing your boomerang children a greater service by working with them to devise a plan that puts them on the road to financial independence. Here are five ways to get them moving.
1. Ask Them to Contribute
Young adults who return home often get too comfortable. Requiring them to share the household expenses, whether by paying rent or helping with maintenance, can help them build responsible financial practices and acquire the skills they need to live independently.
Look at how much they earn as well as what they have in terms of student loan and credit card debt before you decide on an amount. The important thing is to ask for some payment, even if it’s $100 or $200 a month. “This tactic encourages young adults to save and reminds them that the situation is temporary,” says Paul Golden, a spokesman for the National Endowment for Financial Education.
2. Set a Departure Date
Moving back home can be a great way for millennials to save money and build a financial foundation, but it doesn’t have to be an open-ended arrangement. Discuss the timetable even before your child arrives, and work with him or her to establish an agreed-upon departure date.
“Draw up a contract,” Golden adds. “The more seriously you take the situation, the more likely your child will, too.”
3. Work Together on Busting Debt
Many millennials carry a significant student loan burden and need to develop a debt management plan:
- Stick to a budget. Urge adult children to track their spending and look for places they can curb expenses. Available cash should be applied to their debts.
- Organize and prioritize. Help them evaluate their loans so that they tackle those with the highest interest rates first.
- Explore options for lowering debt payments. If your child has Federal student loans, he or she may be eligible for income-based repayment plans. It may also be possible to consolidate or refinance loans to secure a lower interest rate.
4. Focus on Your Own Retirement
The cost of supporting an adult child can be substantial and could even jeopardize your retirement security. Borrowing later to fund your retirement is not an option.
“If helping your child means you won't be saving as much as you hoped for your later years, you should reconsider,” Golden notes.
- Assess how much you can afford to spend on your child without endangering your retirement plan.
- Continue to max out annual retirement account contributions.
- Avoid withdrawing money (and paying the subsequent penalties) from your retirement savings.
5. Emphasize the Value of Saving
Consistent investments made over time can help young adults accumulate wealth and, hopefully, move them along the path to independence. While they may have grown up, it’s not too late to provide some financial lessons.
Take advantage of American Funds’ Investment Calculator and Retirement Roadmap to kickstart conversations about finances. For instance, you can use the Investment Calculator to discuss how you saved and invested to fund the purchase of your first home.
“Lead by example,” Golden concludes. “One of the best ways to help your adult children live a healthy financial lifestyle is by demonstrating the behavior you'd like them to emulate.”