You scrimp, you save, and you sacrifice all your time to ensure you have raised the best child that you could. Your proudest moment is the day that your darling daughter graduates college. She's a full-fledged adult now, able to be independent, have a job, her own apartment, her own car payment, everything she ever dreamed of when you packed her off to college. Until, that is, she asks to come back and live with you.
Or even better, your married son and daughter-in-law need a place to stay for a couple months along with their 3-year-old and newborn children. In figures released by Pew Research Center, 21% of adult children, ages 25-34, are now living in multigenerational households. So how do you insure that your boomerang child doesn't put a kink in your goals for retirement and beyond?
Set Ground Rules
You wouldn't live with a stranger without setting some basic rules first, so why would you allow your adult children to come back home without having certain expectations too? While your child may be in financial need, it should not be an excuse for him to shirk responsibility as well. The ground rules needn't be as strict as when your child left the nest, but there should be certain expectations about paying rent and/or utilities, family participation such as chores and cooking, and even rules that may seem juvenile but may save you from conflict down the road, like noise restrictions, overnight guests, and curfews.
When your adult child asked if she could move back in with you, she may have only been thinking about the bottom lineâ€”that she needs to save money and can't afford rent plus her school loans and her car payment. While it's great that she wants to save money, she probably didn't think about what she ultimately hopes to achieve by moving home. Is her main goal to buy her own house? Is it so she can pay down her school loans? Is she staying only until she finds a full time job? Your goal, not only from a parental point of view, but also as someone who has your own dreams and goals, is to let your child regroup, and then send her back out into the real worldâ€¦for good!
Goal setting should be one of the first conversations you have with your child. Along with setting expectations for family expectations, this will also set an expectation of how you expect your child to improve her current situation. There will be two main goals for your child to set: one financial, and one time-based. Both of these goals should be quantifiable, for example, "I will save 50% of my net paycheck," not, "I'll save as much as I can." Setting these goals will help your child focus on why she's back in your home, and it will help you better anticipate the financial output you will need in order to support your boomerang child for a few months to a few years.
Ways to Save May Equal Dependence
As part of the expectations, it is important to have your adult child pitch in to help the household as they would if they were on their own. Your child should pay rent, a portion of the utility bills, their car insurance, or even their health insurance, even though their primary goal is to save money. This requirement to pay part of the household and living expenses will actually force your child to budget and spend money on necessary items, otherwise the bulk of their expenses may just be spent on discretionary costsâ€”after all, what is more important than food, health, and shelter?
Additionally, while on the subject of expenses, there should also be some penalty for failure to pay your rent or utilities. I know the phone company doesn't hesitate to charge me the $3.00 late fee for being even 1 day late. Since you're a parent, it may be difficult to enforce the late penalties, so one of the easiest ways to avoid being the bad guy is to have your child take over utilities that need to be paid, like the electric or water bill. This way, the electric company will nag your child, plus there are tangible consequences for not paying.
Don't Co-Sign Any Loans or Credit Cards
You may have already done this with your child's school loans from college, but don't continue to make the mistake of co-signing a loan or credit cards for your child. Often, a newly minted college graduate, or a young adult who has been struggling with bills will not qualify to take out large loans or have high credit card limits. This may keep him from buying that car he wants or the house he's been saving forâ€” but this is a good thing!
During the days of easy lending, it seemed like anyone could qualify to buy home, just based on your stated earnings. Now, after the financial crisis and the resultant tight lending policies, it's more difficult than ever to be approved for a loan. While this seems draconian, it is actually in everyone's best interest. Even if it takes a little bit longer for your child to build his credit score, this will serve him well in the long run. He will not only learn better savings skills, but will also figure out how to budget, live within his means, and pay bills in a timely fashion. If you co-sign for a loan that your child couldn't qualify for on his own, you are only increasing the chances that he will need to move back in with you, yet again.
Don't let your boomerang child stop your own financial progress. You may be feeding another person (or 4 more people!), paying more in utilities, health insurance, etc., and that definitely takes a toll on how much you can save. Keep focused and disciplined, stay the course, and definitely speak with your advisor for help budgeting and saving. As much as your child may need you as a financial resource now, imagine if they then needed to take care of YOU financially in 10 years.
Wendy Wan Turk
Gerber Kawasaki Wealth Management
2716 Ocean Park Blvd., Ste. 2022
Santa Monica, CA 90405
CA Ins. Lic. #0H30112
Securities offered through LPL Financial, member FINRA/SIPC. Investment advisory services and fixed insurance offered through Gerber Kawasaki, Inc., a registered investment advisor and separate entity from LPL Financial.
This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. Investing involves risk including potential loss of principal.