Boomerang Kids
It’s been called the new retirement wild card. Not inflation, health-care costs, or taxes. What is it that’s causing so much uncertainty? Boomerang kids, and the money their parents spend on them.
According to the U.S. Census Bureau, in 2011 there were 6 million young adults ages 25 to 34 who still lived with their parents. There are a number of reasons for this trend: the recession, college debt, the high cost of housing, delayed marriage, and a tendency toward prolonged adolescence. Whatever the reason, if your adult children can’t afford to live on their own, establish ground rules for moving back home, including general house rules and how long they plan to (or can) stay. Some other considerations:
Financial Contributions: As an adult, your child should be expected to contribute financially to the household overhead if he is working. Determine a reasonable amount he can contribute toward rent, food, and utilities. You can choose to apply this money directly to household expenses or set it aside and give it to him when he moves out, when it can be used for a security deposit on an apartment, a down payment on a car, or some other necessary expense.
Long Term Planning: Does your child have a job or is she making a sincere effort to look for work? Does she need or want to go back to school? Is she working and saving money for rent, a down payment on a home, or graduate school? Make sure her plans are realistic and that she is taking steps to meet her goals.
Limit Financial Assistance: It’s tempting to pay all of your adult child’s expenses in an effort to help him get on his feet, but doing so is unlikely to teach self-sufficiency. Instead, it will probably make him further dependent on you. Consider giving him a lump sum for him to budget rather than just paying ongoing expenses, and make it clear that is all the financial assistance you plan to provide. Or, instead of giving him money outright, consider loaning him money at a low interest rate. If you can’t afford to hand over a sum of cash (or prefer not to) consider helping with a few critical expenses.
Help Evaluate Finances: How is your child spending their money? A car payment? Credit card debt? Student loans? A fancy cell phone? She is going to have to cut the frills and live with the basics. Suggest she buy a used car and raise the deductible on her car insurance policy to lower premiums. Help her research the best repayment plan for student loans, but don’t pay the bills unless absolutely necessary. Same goes for credit card balances. Consolidate phones under a family plan and have her pay her share. Bottom line–it’s important for her to live within her financial means, not yours.
Protect Your Retirement: Even if your child contributes financially to the household, you may still find yourself paying for items he can’t afford like student loans or medical bills, or agreeing to pay for bigger ticket items like graduate school or a house down payment. Beware of jeopardizing your retirement to do this. Make sure your retirement savings are on track. A financial professional can help you see whether your current rate of savings will provide you with enough income during retirement, and can also help you determine how much you can afford to spend on your adult child now.
Managing boomerang kids is a balancing act, and there isn’t a road map or any right answers. It’s common for parents to wonder if they’re making a mistake by cushioning their child’s transition to adulthood too long , or feel anxious if their child isn’t making sufficient progress toward independence. But setting expectations for all parties early in the process will help with the emotional and financial process.
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