3 guiding principles for parents with adult children living at home
Just because they've grown up doesn't mean they've left the nest. Here's how to handle it financially.
If you have an adult child living at home, you're not alone. The phenomenon dates back to the financial crisis, but has continued-perhaps due to debt. About two-thirds of college graduates have significant student loan debt, which can make it difficult for them to take on all the costs of setting up their own households. And young people generally have higher unemployment rates and earn lower salaries, which can compound the issue.
Whether your child is part of the boomerang generation-having returned home after graduating from college or completing a stint in the military-or never left, here's how you can watch your finances while helping your son or daughter prepare for the future.
Principle 1: Focus on financial education
For parents, having grown kids at home can create stronger family bonds, but it's important to be conscious of the costs. More than 80% of parents provide financial support to their children during early adulthood, according to a 2019 Merrill survey.
Help prepare them for independence: If you shell out financial support, take time to educate your child about budgeting and saving.
- Talk budgeting. Helping your child understand the importance of creating a budget can give him a leg up. Make an appointment for you and your child to discuss options with a banking specialist from Bank of America.
- Try a personal finance exercise. Consider giving him a lump sum or an allowance, for instance, and helping him track where his money goes.
- Set a benchmark. Together with your child, determine a savings goal or a financial benchmark for him to hit and a plan to reach it. When he meets it, it's time for him to tackle his next goal.
- Bonus steps. Once he masters managing a budget, help him develop more advanced money habits, such as weighing whether to pay back student loans early or save money for the future.
Principle 2: Establish new rules
While your child lives with you, make sure the terms are clear.
- Develop a timeline. Know how long your child plans to stay with you, and make sure that time frame works for you.
- Agree on his contributions. Make it clear how he will offset the costs to you of having him in your home. Will he pay a portion of the rent or mortgage, utilities, food or gas for the car? Discuss the household financial expectations you have for your young adult living at home. It's a good time to discuss his help with household chores as well, including whether you're willing to barter help with special projects, such as painting the house, for his share of costs.
- Cut down debt. No matter what, your child should not incur new debt while living at home and should focus on paying down existing debts. For example, does he need to pay off student loans? Does he have credit card debt? Talk to him about which expenses are necessary, and which can be trimmed or even eliminated.
- Support career goals–and income plans. If your child doesn't have a job, what are his plans for getting one? Discuss using the opportunity of living at home to take a part-time job or an internship that could help him build experience. Help him understand it's important to prospective future employers to see progress along a chosen path.
Principle 3: Take care of your own business
Don't jeopardize your finances and retirement while helping your child. It may be tempting to pay your child's student loans or cell phone bill, but do so only when it doesn't negatively impact your own plans. If you make big sacrifices for your child now, you may find yourself facing your own financial challenges in retirement.
Remember, you're both working toward a major goal: financial independence, at every stage in your adult lives.