These days, it seems increasingly common to have adult children returning home to live with their parents, whether it’s because of the high cost of living, student loan debt, or another reason entirely. And when an adult child moves home (or never leaves), it can leave parents wondering just how long they should be allowed to stay.
But what are the true costs of having your family all under the same roof without exploiting your retirement savings? We’ll dive into this topic and provide tips for how to keep your hard-earned household savings intact despite the occupancy changes.
According to a survey conducted by home services entity, Porch, 37 percent of respondents said their children live with them currently—and the majority of this group hoped that would change soon. Nearly 65 percent expressed the wish for their children to leave home as soon as possible.
The 1,001 respondents reported that it costs an average of $459 more a month to house an adult child. That is not a small amount, considering that can be invested and compounded. For example, say you are 50 years old and plan to retire in 15 years. If you use that $459 per month to invest and expect an average return of 8% during those 15 years, you can add potentially another $156,000 to your retirement before taxes and inflation. Despite this possibility and considering the current external factors and conditions, it may make sense to help your child if your personal financial goals and retirement are still on track.
Whether it is by choice due to the more expensive cost of living in certain areas (you probably already know, but California, New York, and other states can cost a hefty penny…), high student loan debt, or potentially due to the recent effects from COVID-19 such as job loss, furloughs, or health reasons, adult children living at home is not an unusual occurrence nowadays.
As you continue to navigate through these challenging times and balance the costs associated with having your kids live at home, we’ll look at both sides of the argument on why you shouldn’t kick them out, or why it might make sense for you to let them go.
Reasons Why You Might Let Your Kid Stay
Just because you have adult children living at home doesn’t necessarily mean you have to rush them out the door. In some cases, cohabitating may actually benefit both you and your child. Below are a few reasons you might decide to let your adult child stick around a bit longer.
1. You Can Still Invest In Your Retirement
Housing your children is not a cheap endeavor. You have an extra mouth to feed to factor into your grocery bill, another body using utilities such as water, gas, and electricity, and potentially the rise in entertainment costs such as cable, internet, or dining out.
If your child is prioritizing paying down their potential student debts, building up their investment portfolios and emergency funds, or trying to get their adulthood on the right track by getting a job or their health in order, it may make sense to house your adult child as long as they are sticking to their goals and you are not ruining your financial future. As mentioned above, an average of $459 per month is not a small amount that you are potentially missing in your retirement contributions, but if you and your financial advisor determine that you are still in a position to achieve your long-term goals, why not assist your child to give them a little extra help?
2. Your Child is Giving Back
Despite the increasing numbers of younger generations (raise your hand if you’re a millennial!) moving back home to live with mom and dad, it could potentially be a win-win scenario if your kid is working, earning an income, striving to meet his/her financial goals, and pitching in around the home.
For example, let’s take Sammy – a 27-year-old working in San Francisco and living with mom and dad in the expensive Bay Area ever since graduating from college five years ago. Even though time has passed and she does not pay a share of the monthly rent or mortgage, Sammy ultimately gives back by doing chores around the house, paying for utility bills such as cable/internet, and even covering the monthly premiums on her parent’s health and auto insurance policies.
Even though your child may not be paying rent for his or her stay with you, if guidelines and agreements are set and met on how they can contribute to your financial well-being, both sides can come out of the scenario as winners!
3. Teach Your Kids Lessons About Money
Aside from the basic credit and debit transactions that your child may have learned from introductory coursework or prior knowledge, there is much more to money that should be learned about. Investing smartly, tax-efficient strategies, saving money in high-yield savings accounts or highly liquid, secure, and flexible accounts, building credit, and emergency fund saving are just a few of the many money-related topics that can be discussed with your child.
Talking about money is never an easy discussion, and is often one that does not occur during the early years of a child’s upbringing. Consider this time together as a way for you and your child to catch up, and get a grasp on educating each other about financial topics and long-term goals and how each side can potentially help each other out.
Reasons Why You Might Kick Your Kid Out
Cohabitating with your adult children isn’t for everyone. Below we’ll talk about a few reasons you may want to encourage them to leave the house, both for your benefit and theirs.
1. It’s important to know the true cost of living
Learning the valuable lesson of financial independence is key when your adult children are on their own. So, how can you teach your kids the importance of saving and “living within their means” if they don’t have an accurate picture of what it takes to live month to month with basic necessities? If you are discounting rent or not even charging rent, you might be inadvertently taking away valuable financial lessons your adult children need when they move out.
According to a 2019 Young Money study, one in five young Millennials reported they would expect to rely on their parents financially into their 30s. But more than 90 percent of parents want their children to be financially independent by age 25, the survey reports. That’s a noticeable difference between the expectations of kids and parents on what age is appropriate to hit financial independence.
2. Motivate your kids to reach their goals faster
Adult children between the ages of 22-30 are in their prime years to start making plans, setting out financial goals (like saving up to buy a house), and working towards the life they have dreamed of living as an adult. One could argue that living at home in the post-college years makes it easier to start saving money such as a downpayment on a house, but that only goes so far. A recent study showed that fewer millennials were saving for a home these days due to already being burdened with paying off massive debt such as student loans (nearly 45% of millennials surveyed).
Not only do you need to be dedicated to spending less while at home, but you need to have the determination and means to reach that goal. Unfortunately, 70% of the millennials surveyed by Insider and Morning Consult said they have a savings account with 58% having a balance under $5,000. With savings that low, prospective homeowners wouldn’t be able to afford a downpayment in most cities these days, let alone expenses in the event of an emergency.
On the other hand, some parents may experience their children procrastinating in their journey toward their ideal vision and life goals and may wonder how long they should continue to help their children before pushing them out to be on their own. 14 years after becoming an adult, and 10 years after the average person graduates from college is more than enough time to find out what they want to do with their life. 10 to 14 years is also enough time to save enough money to live independently. Allowing adult children to stay beyond age 32 does them no favors.
3. Cohabitation may ruin your relationship
Now that your kids have previously flown the coop, your relationships and expectations have probably changed as well. Do you expect your adult children to pitch in more around the house? Would things change socially if you are seeing them on a regular basis versus during events/holidays/birthdays? Communication is key for dealing with the new dynamic at home and it’s important to set clear boundaries and expectations with your children if they have recently moved back in. Otherwise, feelings can be hurt and ruin your long-term relationship over disagreements/grudges that may present themselves in short-term situations. And you can’t put a price on that.
Setting Ground Rules
If you decide to allow your adult children to continue living with you, it’s important to set some ground rules and boundaries to ensure the arrangement works for you both.
1. Discuss expectations
If you agree to let your adult child living at home, it’s important for everyone in the household to sit down together to discuss expectations and boundaries. It may also be worth writing a contract together.
In your discussion of expectations, be sure to discuss household chores. Who will be responsible for what? Will there be consequences for failing to follow through on those chores?
2. Set financial responsibilities
Make sure you aren’t only discussing household labor when talking about house rules. You’ll also want to discuss financial responsibilities and boundaries.
It’s important that your adult child knows exactly what they’ll be financially responsible for and what they won’t. Yes, it makes sense for them to cover their personal bills like student loans and car payments. But what about household bills? Will they pay a portion of the rent and utilities? Will they buy their own groceries or at least chip in for family groceries?
Now that your child is an adult, you’re no longer obligated to support them, especially if it means sacrificing your own financial security and future. However, it’s important to layout the new financial arrangement so everyone is on the same page.
3. Respect their adulthood
Remember that, even though your child is living at home again, they are still an adult. And while there may be some household rules they’ll be subject to under your roof, it’s also important to find balance and respect their adulthood, especially if they’re financially contributing to the household.
For example, now that your child is an adult, it may no longer be appropriate for you to have a say over what time they should be home, what they’re doing when they aren’t home, and how they spend their money (as long as they’re meeting the financial obligations you agreed to together).
4. Set a move-out timeline
Just because you’ve agreed to let your adult child live at home for now doesn’t necessarily mean you need to do so indefinitely.
When your child moves home, consider setting a move-out timeline right away. Depending on the situation, this timeline could be either time-based or goal-based. For example, you and your adult child might agree that they can live at home for one year. On the other hand, you might decide they can live at home until they’ve reached a specific financial goal, such as saving up a certain amount of money or until they’ve paid off their student loans.
If you agree to a financial-based move-out, you may also want to set some ground rules to ensure your child is actually working toward that goal. For example, it may be appropriate for them to agree to allocate a certain dollar amount or a certain percentage of their income each month toward that goal.
Things to Consider
Since you know the potential increase in costs associated with an adult child living at home, here are some items for you to consider to ensure your retirement and financial goals will remain on track despite the increase in monthly expenses from helping your adult children:
Sign up for Personal Capital’s free financial tools, where you can access Retirement Planner, a comprehensive retirement calculator that will help you plan for several scenarios.
Consult with a fiduciary financial advisor to make sure your current plan is still on track to meet your financial goals.
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
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