If you are a new graduate trying to move away from home and get your start in life: Sorry.
For aspiring homebuyers, the United States just experienced its highest-priced April ever recorded, according to the National Association of Realtors.
As for renting, that is unaffordable for half of renters, according to a study by the Harvard Joint Center for Housing Studies.
Which creates fertile ground for the phenomenon known as … the Boomerang Kid.
Many young adults are living with their parents because it makes so much financial sense, according to a new survey by financial services firm Thrivent. In fact, 46% of parents say their adult children have “boomeranged” back home at some point – and 50% of them say sky-high housing costs are to blame.
“It is little bit surprising, because I didn’t realize the numbers were so substantial,” said Alex Gonzalez, a financial advisor for Thrivent in Bloomington, Minnesota. “But it is certainly understandable that parents would help their kids get started in life,” adds Gonzalez, who is, incidentally, the parent of two boomerang kids.
While a “boomerang” back to the old homestead can be the smart financial choice, it can also create a highly combustible situation. Relationships change as children become adults. And when money, history and emotions are all thrown into a blender, everything has to be handled very carefully.
Here are three tips for parents of boomerang kids.
Have boomerang kids contribute
As members of the household, presumably bringing in their own incomes at this point, boomerang kids should contribute to expenses. But the financial requirements can be up to you and your particular circumstance.
For instance, kids could pay “rent” and/or chip in a portion of the monthly bills to help defray parental expenses. Or in lieu of rent, kids can use that pot of money for fiscal fitness: to build up emergency savings, pay student loans, start a retirement account or create a downpayment fund for their own place.
“Perhaps the child is charged for rent and utilities, but at a discounted rate that helps both parties involved,” suggests Andrew Herzog, a financial planner in Plano, Texas. “I know someone who has moved back in with her parents while she works her full-time teaching job, saves a tremendous amount of money in the meantime and pays some rent to grow accustomed to living expenses.”
Make a plan and be clear about it
A boomerang can go wrong when expectations on both sides are very different and resentments start to build up.
Avoid those misunderstandings by having discussions upfront, and perhaps even writing it all down. Is there a time frame you have in mind, say a year or two? Do you want to see proof of your kids making financial strides along the way, or does that feel too invasive?
“Everyone needs clear parameters regarding what this arrangement looks like and its duration,” advises Ashley Folkes, a financial planner in Hoover, Alabama.
“Kids must have strict accountability measures because, too often, they take advantage of their parents,” Folkes said. “Without proper boundaries, this situation can become a form of enabling.”
Do not sacrifice your own financial future
If a boomerang involves little more than occupying a spare room that is already there, that is one thing. But if the arrangement affects your own future — preventing you from contributing to retirement funds, requiring you to draw down savings, and so on — then it requires more thoughtfulness about how to keep everybody’s finances on track.
For instance, in the Thrivent survey, 38% of parents whose kids have boomeranged back home say they struggle to pay off their own debt, up from 23% in last year’s survey. And 37% say they find it harder to save for retirement or housing costs – up from 16% last year.
In that case, a dispassionate third party like a financial adviser can help analyze the situation with clear eyes.
“Parents love their kids so much that sometimes emotions take over and they don’t think about themselves,” said Thrivent’s Gonzalez. “An adviser can help set rules, manage expectations and advocate for parents to think about their own goals as well.”
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