The job market for young adults has improved steadily since
2010, yet the number of millennials living with their parents has continued to
climb. As of the beginning of 2015, 26% of millennials (defined as those
currently age 18 to 34) lived with their parents, according to the Pew
Research Center. For 25-year-olds in particular, the trend is even more
pronounced. A Federal Reserve Bank of New York report in September
2015 found 30% to 50% of 25-year-olds were living with their parents in 2013,
depending on the state. All 48 contiguous states saw a rise in this
"co-residence" between 2003 and 2013, with a median increase of 13.8
percentage points. The Northeast and West Coast had the biggest increases.
(Alaska had a slight decline.)
For parents, the financial burden of letting an adult child
move back can mean delaying retirement. Consider this: 52% of Boomer households
that have children but don't support them are retired, according to a March
2015 study by Hearts & Wallets, an investment and retirement research
firm. Among Boomers who do support adult children, only 21% are fully retire.
Boomers who support adult children are also 25% more likely
(at 38%) than other Bboomers to say they have moderate to high financial
anxiety, according to the Hearts & Wallets survey. How can you avoid being
one of these stressed-out parents who can't afford to retire? Two words, says
certified financial planner Jeff Rose: "Tough love."
Rose, founder of Alliance Wealth Management in Carbondale,
Ill., cautions against letting adult children move back in at all. He notes
there can be exceptions, like an adult child going through a bad divorce. But
in general, "If it's because they can't keep a job, they don't know how to
manage their own money, and they know mom and dad will bail them out,
absolutely not," Rose says.
Crushing student debt also appears to be offsetting the
opportunities of a better job market. Researchers at the Federal Reserve Bank
of New York tracked student debt at age 25 with the rise in co-residence with
parents at the same age. They found that the two trends coincided, suggesting
that student debt is a primary driver that's putting kids back in mom and dad's
spare bedroom.
Making their exit
plan
If you can't deliver the tough love, at least print out a
contract, Rose says. Tell the moochers they have to pay rent, and put it on
paper, he says. "No casual handshake — or hug — and hold them
accountable," he says. If your adult child is unwilling to sign the
agreement, he or she shouldn't be moving back in, Rose says. Plick also advises
setting a timeline for the child to become self-sufficient. If your adult kids
are already draining your financial well, Plick has this advice:
• Do not pull money out of your retirement accounts to help
children.
• Help the adult child set up a budget.
• Work with a financial planner to determine how much
support, if any, you can provide to the adult child.
Plick also cautions against buying life insurance for
the purpose of providing funds to an adult child if you die. (Special-needs
adult children, of course, do require such planning.) Plick points to one smart
expense, though: Pay for the child to work with a financial planner or
counselor to create a long-term plan, especially if debt is involved.
If you can't shut the door on kids to protect your own
retirement, do it for the good of your country. The New York Fed report noted
that young people who live at home delay major purchases and general
participation in economic life. Their inertia is one factor behind sluggish
economic growth.
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