The number of adult kids living at home is on the rise. Aside from the challenges of living peacefully with adult children who have some autonomy, this trend is putting parents at financial risk.
According to recent statistics reported in Yahoo Finance, more than 14 million young adults between the ages of 23 to 27 are living in their childhood homes. This is 12.7% more than in the year 2000.
These statistics seem to run contrary to the reality of a much-improved employment market. Student loan debt and the high cost of housing, especially in certain urban markets has forced many millennials to seek financial shelter in their childhood homes.
Is This Okay?
As parents, you want to help your children, even if they are old enough to be living on their own. At the same time, you want to do everything possible to help them lead successful, independent lives.
Here’s a 4-prong test to help you determine if living at home is really the best strategy for your adult children.
- Are they employed or actively engaged in looking for employment?
- Or, are they seriously engaged in earning an education or skill that is marketable?
- What level of effort are they making to pay down their student loan debt?
- Are they establishing a healthy credit history, by paying bills on time and their credit card balance in full each month?
- Do they have a savings strategy and are they devoting some level of income to savings accounts?
Adult Kids Living at Home is Putting Retirement Savings Goals at Risk
A new Bankrate financial independence survey found that 50% of Americans are sacrificing or have sacrificed their retirement savings plan in order to support their adult children. This is a double problem. Americans are not saving enough for retirement. And now more parents are saving even less to so they can financially support their adult children. If your adult kids are going to live with you be sure that you continue to max out your retirement accounts and keep an emergency savings fund.
When Should Kids Start to Pay Their Own Bills?
The same Bankrate survey cited above also asked parents at what age should young adults become responsible for certain bills. The majority responded that young adults should be responsible for their own cellphone bills at age 19. They should be responsible for car payments, car insurance, credit card bills, and subscriptions services at age 20. They should be responsible for their student loan debt and health insurance costs at age 23. And most agree that they should cover their own housing costs at age 21.
If you find yourself in this new reality of your adult kids living at home, you need a plan to help you stay financially sane. Your financial goals are important. How do you keep them from being derailed?
- Discuss Everything
The moment your adult kids express their desire to live at home, sit down and have a very honest conversation about mutual goals, expectations, and responsibilities. Include the following topics in your discussion. Write down all the agreements you make and sign it.
- Exit Goals
Establishing a timeline for your child’s exit from the nest is critical to their development as well as your financial health. You may be able to absorb the additional expenses for a while, but if helping your kids means sacrificing your own savings and financial health, you must have a deadline. If you always talked with your kids about money this conversation should be easy. The longer you delay, the greater the opportunity for your kids to develop some unrealistic expectations and for you to become resentful.
- Will They Pay Rent and Share in Household Bills?
How will the household bills be paid? Will they contribute some percentage of the total rent or mortgage? What about groceries? Will you share meals? Or will you live more like roommates? If groceries are going to be for the “family” how will the expense be divided? An easy way is to keep all the receipts and at the end of the month total them up and divide it according to your earlier agreement.
- What Personal Bills Will They Pay?
You might want to follow the Bankrate survey results. If they are 20 and employed, they can pay their own cellphone service, make their car payments and cover the cost of their subscriptions. Assuming 100% responsibility for all of their financial obligations will not only hurt you, but it will deprive your children of the opportunity to gain financial literacy and mature in financial health.
- Modifying the House
Probably their childhood bedroom is not going to be as comfortable or even practical. You can update the bedroom itself by simply changing the furniture and furnishings. Or you can turn the basement or garage into a guest suite. Ask them to help cover some of the costs. Online home remodeling loans can help you too. Don’t use your credit cards.
- Talk Frequently
Schedule a time for regular family meetings. Discuss everything. And stick to all deadlines. In the meantime, you have a great opportunity to teach your kids living at home about fiscal discipline, budgeting, goal-setting and the importance of minimizing debt.