If your child becomes one of the millions of young adults who boomerangs home to live with you, the added expense could put a serious crimp in your retirement plans.
Despite an economy that has been steadily recovering since the Great Recession ended in 2009, just 67% of people ages 18 to 34 lived apart from their families in the first four months of this year, according to a study by the Pew Research Center. That recent data echoes similar numbers from a 2013 Gallup poll that also found one-third of adults ages 18 to 35 were still living with their parents. Just as middle-aged parents put some of their heaviest financial burdens behind them, their kids come calling for help.
Thirty-six percent of financial supporters who have children say they would delay their retirement to help their adult children, according to a recent Financial Support Study by TD Ameritrade. Of those who support adult children, almost 70% said they would continue to do so until their children found well-paying jobs.
But you don’t necessarily have to let your adult children slow your retirement savings, financial experts say. Straight talk with your adult children about your financial goals and their responsibility can help put everyone on the path to independence.
“You don’t want to end up being ‘The Giving Tree,’ ” says Charlie Bolognino, financial advisor for Side-by-Side Financial Planning LLC in Plymouth, Minnesota. “This is not about you needing to feel the pressure or the guilt to sacrifice everything you have as a household beyond your kids. It’s not your job to give until it hurts.”
Here are a few key steps you can take to keep your finances on track when your adult child moves back in.
Start discussions early
Your child might return home for a variety of reasons, such as unemployment, the high cost of living, debt or just a need for shelter while mapping out the next step in life. About half of the time, financial discussions between parent and child begin because the child asks for support, according to the TD Ameritrade study.
When a child asks for help, parents tend to get “hero syndrome,” says Carlos Dias Jr., a wealth manager and financial advisor at Excel Tax & Wealth Group in Lake Mary, Florida. “They’re taking care of their kids and paying for their expenses and not putting any burden or responsibility on them,” he says.
Be honest about your financial goals
Now that your children are adults, help them understand your financial goals and limits.
“Sit down and explain, ‘We have cash flow and we’re employed, but money we would help you with is money we’re taking from our future selves,” says Eric Schaefer, a financial planner at Evermay Wealth Management in Arlington, Virginia. “Most millennial children reliant on a near-retiree or retiree should be able to reasonably understand.”
Helping them understand includes curbing their expectations, Bolognino says. “It’s part of onboarding your child back into your household saying, ‘We’ve loved every minute of doing this for you all these years, but as your mom and dad there’s a real world we need to live in to be prepared ourselves,’ ” he says. Adjust your budget for the new reality and share with your child how much you can afford to spend to help him or her out.
Create a plan for reasonable support
Depending on how much debt your child comes home with, it’s your choice to determine how much you can afford to help him or her — if at all.
“It’s a tough line to walk because it’s your kid, but you need to handle it in a businesslike fashion. So you need to explain to them: If they need money it’s considered a loan. You write up terms, and you figure out how they will pay you back,” says Ed Snyder, a financial planner with Oaktree Financial Advisors in Carmel, Indiana.
Establishing these kind of expectations through conversation and in writing is crucial from the get-go, says Robert Stammers, director of investor education at CFA Institute, an association of investment professionals.
This is particularly true if money is changing hands between you and your child. “It’s often one party that perceives the situation differently and that can be a problem,” Stammers adds.
Support only necessary expenses
Experts advise against paying for lifestyle-related expenses your child may have such as money for hanging out with friends or taking trips. “All too often I see people co-signing on a car for children who are unemployed or I see people paying their children’s dues at country clubs even. Helping with lifestyle is a very slippery slope,” Schaefer says. He adds, “It makes it more difficult to turn off that support even once the child does have the financial ability to support themselves.”
If your kids have poor money management skills, make sure you’re not giving them an opportunity to take on more debt or spend frivolously, Stammers says. While they regroup at home, you have the chance to help foster strong personal finance habits that will help them in the long run.
If they are in financial trouble, “Make sure they go out and get credit counseling or financial counseling so they can learn how to manage their money,” Stammers says. That way, “the aid you’re giving them is actually productive.”
Come up with an exit strategy
In a 2012 study on “The Boomerang Generation” by the Pew Research Center, nearly half of those surveyed said they paid rent to their parents and almost 90% said they helped with household expenses.
Whether or not you decide to charge rent, Tom Stockett, founder and CEO of Structured Growth Strategies, suggests working with your adult child early on to establish a few key things:
- How much your child will contribute to household expenses
- What sort of employment he or she will have, even if it’s not a dream job
- How long he or she plans to live at home
That last question should lead to an exit strategy. You and your adult child should agree upon a target date by which he or she will move out.
Otherwise, your home and your help could become the crutch preventing your child from achieving financial independence. It could also be what holds you back from achieving your retirement goals.
“You want to help your kids, but don’t help them to the detriment of your own finances,” Stammers says. “If you’re in or near retirement and you get in financial trouble, then you won’t be there to help your kids either.”
This story originally appeared in USA Today.
Image via iStock.