How to Prevent Boomerang Kids From Ruining Your Retirement Budget
Times are tough. So tough that a record 36% of all millennial-aged adults lived with their parents, as of the most recent census report in 2012. Why, exactly, are today's youth moving home in droves, and how can parents help their adult kids without risking their own retirement solvency? (See also: How to Balance Retirement Savings and Other Priorities)
Why Are So Many Young Adults Returning Home?
The financial situation is vastly different for young adults today than it was for the last two generations. Recent research found that millennials carry more student loan debt and have higher rates of unemployment than Gen Xers or Boomers did when they were in the same life stage. They also face higher rates of poverty and lower levels of personal income and wealth. That's a big burden to bear, and it's one that many millennials can't manage on their own. (See also: How to Pay Back Student Loans Faster)
How a Bleak Job Market for Young Professionals Affects Parents
Many Boomer parents are, as a group, willing to help their adult children find their footing in today's slippery economic landscape. Many parents want to help so much, in fact, that they can put their own retirement plans at risk to help finance their kids' burgeoning adult lives.
According to the experts, this could be a huge mistake. "Adult children returning home pose a large threat not just to retirees' savings but also to their retirement vision," says Brooke Bees, certified financial planner with Mercer Advisors. "Whenever there is an increase in expenses that was not planned for, the risk to the retirement nest egg grows."
How Much Help Is Too Much Help?
Financial experts agree that there is a fine line between helping and enabling adult children. According to Patricia Nelson, founder of the community outreach program Wise Women Workshop, "It is very important that boomers do not enable their children, but instead help them become financially literate, so they can eventually live on their own."
Mindy Crary, financial coach and certified financial planner practitioner, suggests "it's good for grads to struggle just a little to figure it out. Some grads are waiting for the perfect job and are not willing to take anything until they get it. They go home to mom and dad and tend to isolate themselves a little. That's not how the rest of their career is going to work, so why allow it?"
Crary furthers that young adults who enter adulthood with the expectation that they'll have to support themselves (either because parents can't afford to help or have simply told kids they would not do it) are some of the most money-savvy and resourceful people she meets in her practice. Resourcefulness and savvy are valuable traits for anyone to learn, but particularly those learning to manage their finances in today's challenging economy. (See also: Raising Financially Independent Children)
How Should Parents Help Adult Kids (Without Breaking the Bank)?
According to Crary, the conversation should start before they've even graduated. "I don't think it's a bad thing to tell your kid now, while school is still wrapping up, 'I love you and I support you, but you need to start your job search now, so you have a plan to work from in a few months,'" says Crary. "Most college career centers offer the exact same messaging throughout all of junior and senior years." In other words, you'll just be emphasizing a message they've already been hearing.
The transition from college to adulthood is a big one, and sometimes kids just need a little help navigating the financial landscape. "Parents can help their kids by teaching them how to take more responsibility for themselves. Adult kids can move in with roommates, live frugally, and wait tables until they get that ideal job," says Crary. "The more they tackle for themselves, the better off they'll be — from both a self-esteem and a financial standpoint."
Even so, sometimes the financial situation is so bleak that adult kids really do need to move home. If this happens, "it is important for parents to review their child's 'financial house.' Sometimes the house is cluttered and needs to be organized," says Nelson. "Parents can help their children understand their current financial situation, plan future goals, and create and commit to a savings plan to make this a short term transition period." (Note: This could be helpful even if kids don't move back home.)
Some other ways parents can help their adult kids if they do, indeed, need to return home for a time, include formal arrangements to cover rent and bills and honest discussion about money. (See also: 16 Tips for Boomerang Kids)
1. Set Up a Rental Agreement
Or have kids pitch in with utilities or groceries, whatever you think is within their budget. We tend to stay put somewhere only until it becomes so uncomfortable that we need to move on. Don't make it too comfortable for your kids to stay home indefinitely.
2. Be Honest
Tell your kids if their presence impacts your financial future and how. Many kids don't know that their folks have limited financial resources. Unless you're up front with them about how their expenses will impact your retirement plans, they probably won't know.
3. Create a Contract
Sit down to hammer out the details of your arrangement. How long will they stay and how will they contribute? If they don't have the resources to pay rent, what chores or other household tasks can they take on in exchange for lodging? An "unknown relating to grown children coming back home is not only how much this will increase a retiree's living expenses, but for how long," says Bees. "A few months may not be a threat [but] a few years or a decade is a major concern." By knowing many of these variables up front, parents can increase their chances of keeping a retirement vision intact. (See also: A Quick Guide to Contracts)
Even though Crary recommends taking a hard line position with adult kids, she thinks there is an appropriate place for parents who have the means to help. "I think the time to be financially soft on your kid is maybe in helping them with a down payment [for a house] or giving them an annual gift to pay down student loans," she says.
In this advice, Crary recognizes the challenges millennials face in today's economy while still advocating for long-term self-sufficiency. And what parent doesn't want self-sufficiency for their kid?
Have your adult children moved home recently or in the distant past? How did it work out? What steps did you take to make the living arrangement work out for everyone in the home? Please share your experience in the comments!