Recent years have seen more adult children moving back to their parents' homes than ever before after completing college. The high cost of living, combined with a slow-moving economy, may have something to do with the increase of these so-called "boomerang children."
While no one knows how long this might last, it seems reasonable to assume that it will continue as long as the prices of starter homes and condos are out of reach for those just starting their working years. These "returning birds" need special guidance to deal with the costs of getting back out of the nest (and on their own) and in developing successful savings patterns.
Parents who have often spent tens of thousands of dollars sending their children to college, paying for cars, vacations and other "necessities," as well as the normal costs of raising a child, are understandably concerned about the present sociological situation. Their children, on the other hand, after years of living well with their parents, find it difficult to set out on their own (or do not wish to do so); they are not financially able to make it on their own, generally because of the job and housing markets, but also because they have been taught, or learned, to spend rather than save.
Rules for Independence
Parents who wish to see their children living on their own should set new ground rules.
- Rule number one should be that the child has to contribute money and/or services (in place of rent) to the family household.
- Rule number two should be that the child has to save a significant percentage of his/her earnings for ultimate use as a down payment fund to furnish an apartment, purchase a home, or start a business.
Saving, for a bird who has returned to the nest, is an exercise similar to that of saving for college, except that the time frame is shorter. The emphasis should be on safe, relatively short-term investments. Parents should help set financial goals for their adult children and monitor their progress. Many parents who want to continue helping their children can do so by establishing an incentive plan. For instance, for each $1 saved by the child the parents might contribute a certain matching percentage. Parents can jointly give up to $20,000 per year to each child without federal gist or estate tax consequences.
To the extent that parents may be too personally and emotionally involved to teach adult children to save, an objective outside party knowledgeable in financial matters should be sought to counsel children on how to achieve financial independence. There are a number of strategies which may prove useful to help your "birds" fly under power of their own wings!