Tune up your finances
Much to the chagrin of today’s parents, adult children are moving back home in droves.
These adult children are called “boomerang kids,” and unlike their free-spirited counterparts of the 1960s, they tend to be more closely tethered to their parents.
The culprits: mounting credit card and student loan debt. Add the high cost of living in some areas, and you have three compelling reasons why boomerang kids are flying back to the nest.
A couple of generations ago, things were different. Adult children who didn’t go on to college either got jobs or started families.
- Discuss expectations.
- Set ground rules and time limits.
- Avoid being an enabler.
- Share household costs or chores.
- Prepare for money requests.
- Compel child to start saving.
“In the baby boomer era of the 1950s and 1960s, adult children got married at a younger age,” says Rick Staszak, a certified estate planner and registered financial consultant with Financial Network Investment Corp. in Pittsburgh. “They lived with the parents or in-laws for a year and saved money to put down on a home.”
Decades later, college graduates are concerned that today’s entry-level salaries are inadequate to support their lifestyles. So they put off moving out and raising families for longer periods of time.
“More than three-quarters of college graduates in 2008 said they planned to move back home with their parents, up from two-thirds in 2006, according to Collegegrad.com.”
“To a certain extent, it’s a sign of the economy,” says Certified Financial Planner Craig Skeels of Apex Wealth Management Group in Oxnard, Calif. “If it continues to be a prolonged recession with more cuts in jobs, we may see a lot more adult children moving back home than what we’re experiencing today.”
With so much of adult children’s baggage consisting of IOUs, parents are struggling to help their children financially without jeopardizing their own retirements. They can smooth the transition by establishing clear communication lines and setting a few ground rules before boomerang children move back in.
Open lines of communication will likely go a long way with your adult children, says Ruth Nemzoff, author of “Don’t Bite Your Tongue: How to Foster Rewarding Relationships With Your Adult Children.”
“Talking about the move back home is an opportunity to share the changes you’ve undergone since your child moved out,” she says. “It’s also an opportunity to learn about the changes your child has undergone.”
Nemzoff, who holds a doctorate degree in social policy from Harvard University and raised four children, says relationships with adult children are always evolving. Therefore, maintaining open dialogue will lessen the chance of misunderstandings.
“I think we can all learn from each other, but it takes forgiving of ourselves and our children and many discussions about how we each want to live our lives,” she says.
Tune up your finances
Set ground rules and time limits
Just because your college graduate is technically an adult doesn’t mean he or she will always act like one.
For example, most parents wouldn’t savor returning from a weekend trip to discover that their home served as the venue for a party.
Establish from the outset what the house rules are and talk to your child about an estimated time frame in which he or she will live in your house. And let your child know how you feel about smoking, drinking and overnight guests before your child moves back home.
You could tell the child that staying at home is OK as long as he or she searches for a job or saves for a down payment on a home, for example.
“Today, it’s to the benefit of younger people if their parents teach them to start handling financial responsibility as opposed to just having everything handed to them,” Staszak says.
Try to get feedback from other families with adult children living home. You may find their perspectives helpful.
Avoid being an enabler
It’s not just a down economy that’s luring boomerang kids back home. Parents may be contributing to the trend by being too financially accommodating.
“The art of parenting is tricky,” Nemzoff says. “It is difficult to know when you are enabling your child to remain irresponsible and when you are facilitating his or her launch into an adult life.”
One study seems to indicate that parents are incentivizing their child’s move back home.
Nearly 70 percent of boomers said they helped an adult child with college loans, and more than 50 percent said they helped with an auto loan or allowed adult children to live at home rent-free, according to a recent survey by Ameriprise Financial.
Nemzoff says if you are going to help your children financially, they should be diligently looking for a job or volunteering somewhere to build experience for their resumes.
“If your child is just hanging around, you may want to say ‘no’ more often,” she says.
Share household costs or chores
If your child has a job, household expenses should be shared, even if it’s just buying groceries or paying a share of the utilities.
If your child does not have a job, household chores such as cooking, cleaning up after meals and yardwork should be shared, Skeels says.
“If the child has some sort of income, they should be paying some form of rent to the parents to help cover costs and to get them used to having some set bills again,” he says.
This is probably a good time to re-examine your household budget or start a new one.
It will be easier to keep track of your additional expenses and find areas to save money.
Tune up your finances
Prepare for money requests
If you don’t need your child’s rent money, think about putting some or all of it aside into a savings account. The money can be tapped later if your child asks you for money, or if not, it can be used to defray future wedding expenses.
It’s generally not a good idea to lend or give money arbitrarily before you assess your own financial situation.
If your child does ask for money, take the time to plan where this money will come from and how soon you’ll need it back, if ever.
“It goes back to expectations,” Skeels says. “Are these funds meant to be a gift or a loan? Decide which one it’s going to be, and let’s treat them as that.”
If you decide to lend your child money, set up a payment plan and insist that the money be paid back. “If it’s not paid back, don’t loan in the future, just like a bank wouldn’t,” says Skeels.
Compel your child to start saving
College graduates often have two things in common: They have bills to pay, and they need money.
If your goal is to nudge your boomerang kid out of the house within a specific time frame, now is a good time to help him or her build wealth.
If your boomerang kid is working, encourage him or her to start saving some income every month and build up cash reserves.
This will help with the short-term goal, which is to help your child become independent and move out.
Getting children to start saving for long-term goals such as retirement may be a little trickier. With homecoming rallies and keg parties still fresh in their minds, children will likely give no reaction other than a glassy-eyed stare when a conversation about retirement is brought up.
Still, it should be part of the living-at-home discussion.
If your child is working and his or her employer provides a 401(k) match, encourage the child to participate in the company plan. Even if there is no match, your child should contribute at least the minimum.
If the employer doesn’t offer a retirement plan, persuade your child to save in a Traditional IRA or Roth IRA.
“The real key is for them to get some direction,” Skeels says. “A lot of time when they move back in with folks, they don’t have that direction.”