Often referred to as “the boomerang generation”, a high percentage of recent college graduates move back to the nest. In 2010, an astounding 85 percent of seniors said they intended to move back to their parents’ home after graduating from college, according to an article by CNN Money. Some parents debate whether to allow their young adult children to live at home and some try to put parameters around the living arrangement by charging rent or asking young adults to cover utility bills. As a parent, you should prepare financially for your children to move back home as part of a good backup plan. It’s also prudent to help your children develop good financial habits so they can, ultimately, choose a place to live that they can afford on their own income as they become financially independent.
Setting Them Up to Succeed
Teaching your child the basics of financial planning can help him or her avoid very costly mistakes down the line, such as bankruptcy, civil lawsuits from credit card companies, tax audits, and poor credit. After graduating college, some young adults simply don’t make enough money to pay off student loans as well as pay rent. Rent costs, according to officials, continue to climb higher every year. Teaching your child to keep their rent costs below 15-20% of their gross monthly income can help them get off on the right foot, depending on each personal financial situation. High living costs are one of the easiest ways to get into debt, yet also one of the easiest choices to control.
To help avoid giving a young adult a sense of entitlement, it is often wise to insist on some form of buy-in whether it’s paying rent, covering the cost of utilities or groceries, or some combination thereof while they are establishing themselves financially. If you decide such a buy-in is appropriate, be sure to give your adult children total privacy. Don’t invade their private apartment. Yet, remember to make your own boundaries clear as well.
Thinking Like an Investor
As a parent, you invest in your children’s education and future. Housing is one of the most expensive costs your child incurs in life, but most recent college graduates have low or no credit, low income and student loan debt all of which may delay their ability to purchase a home of their own. Therefore, in most cases, they rent and rents can be high. A potential win-win approach to consider is renovating or converting part of your home into a separate apartment that your young adult can rent. Because multigenerational living is an increasing trend, the renovations will likely boost your home’s value. Many new home builders design the “home within a home” concept specifically for boomerang children and multi-generational households.
Another option is to buy an investment property such as a duplex and rent a portion of it to your young adult child. Make your young adult child the official property manager even if he or she does not have handyman skills. He or she will get to practice management and organizational skills by collecting rent and hiring maintenance technicians to take care of the property.
Both of these scenarios allow you to recoup some of the costs associated with creating a workable solution without creating a sense of entitlement in your adult child.
Instead of waiting until graduation, plan ahead together to arrive at the best solutions for your family. At Sharkey, Howes & Javer, we enjoy working through financial challenges such as those discussed above. For more tips on preparing your children to make financially sound decisions after college, please contact us today.