Allworth Co-CEO Scott Hanson shares advice to help parents nudge an adult child back into the real world.
Have you ever launched a boomerang and had it fly all the way back to you?
Me neither.
I’ve reached an age where my oldest children, and most of their school chums, have graduated from college.
Some in this group had accepted promising jobs in far-away cities, only to have those jobs vanish once COVID hit. Many kids, and this includes lots of young adults who still had jobs but transitioned to working from home, then moved back in with their parents to weather the COVID storm and save money.
For some, the appeal of living in expensive cities vanished when everything shut down.
Of course, this “move back home” trend was in full effect long before COVID.
I wasn’t surprised by the following statistics: 50% of parents say they are sacrificing a portion of their retirement savings to financially help their adult children.1 Further, 31% of parents now have at least one post-college-age child living with them.
Now, frankly, because even if they never really grow up, they still grow up too fast, lots of parents love the second act of having their adult children move home.
But never forget that it’s a costly bargain.
That’s because the expense of an adult child living with you is not limited to food or household items. There can be substantial additional costs such as the decision to remain in a roomier, more expensive house, or funding travel, paying student loans, or subsidizing a vehicle, just to name a few.
And those expenses add up to tens of thousands of dollars each year.
If you have boomerang kids, especially if they have a job and income, this is your opportunity to not only set some financial limits for yourself, but set a great example for them that will last a lifetime.
Here are 5 things you should consider doing.
1. Calculate how much this is really costing you
Write down all the bills you pay for your grown child, starting with monthly expenses such as car payments, health insurance, car insurance, and student loans. Then list any other payments you’ve been making (regularly or semi-regularly), for things like credit cards and cell phones.
Next, list and then average out the higher food and utility bills. And, if you’re buying clothing, paying for a gym membership, or footing the bill for Hulu or Amazon, add those in as well.
Now, determine which items can be eliminated, and which can be lowered, shared, or consolidated.
2. Establish new boundaries
The odds are, your adult child has no idea just how much money they are costing you. (It’s easier to ignore when there are no hard numbers to face.)
With that in mind, it’s time to create a budget.
That is, after you’ve listed the costs, and you’ve decided what you are going to cut, calmly go over the list with your child. Explain your reasoning, and show them any redundancies, reductions, and even which expenses, for the time being, can remain in place.
Set a dollar limit, and then remember to first, last, and always (and calmly) remind them that you must focus on saving for your own retirement.
3. Determine what they can afford
For their benefit, and for yours.
There’s a “creep” factor to having your adult children live at home. And by that, I mean that I’ve worked with numerous clients who slowly but surely came to realize a year or two after their child moved back home that they were subsidizing an increasingly gratuitous lifestyle (than they were in the beginning).
If your child has income, then it’s time for them to contribute.
My experience has shown me that the first - and most important - step is rent. That is, if you do nothing else and they have income, ask them to pay a fair amount each month.
4. Insist that they start saving
Right along with paying some rent, another important step toward weaning an adult child off the parental dole is the practical and symbolic statement of insisting they begin saving for the future.
Pre-tax automatic withdrawals and employer matching are two of the greatest things ever invented.
If your child has access to a work-sponsored defined contribution plan such as a 401(k), make sure they are saving something (at least enough to receive the employer match).
Simply, if you can evolve your adult child into paying you rent, saving something for the future, and into agreeing to cut some unnecessary expenses, you’re teaching them something that will last forever.
5. Get your advisor involved
We advisors speak the language of finance, retirement, and investing. But even more importantly, we do it dispassionately. (One of the key things I do is to remove the emotion from conversations about money.)
If you haven’t already, introduce your child to your advisor. Before the appointment, discuss with your advisor what your concerns are, and what you hope to achieve during the meeting.
Your advisor has likely had dozens, if not hundreds, of these conversations.
We all want what is best for our kids. And it feels so good to give to them. So, while adult children living at home can be a slippery financial slope for you, it can also provide everyone with an important teaching opportunity.
If an adult child has moved home, and they don’t seem to be moving in a financially responsible direction, re-launch them after they’ve had the opportunity to catch their breath and benefit from your wisdom.
1 https://www.forbes.com/sites/rcarson/2019/08/11/five-ways-to-keep-boomerang-kids-from-ruining-your-retirement/?sh=422c48e06349
