I wanted to share this excellent infographic from BillShrink.com. It provides a great look at Americans’ spending and saving habits, along with some thoughts on why it’s become so easy to spend and so hard to save. Some of these reasons (lifestyle maintenance, instant gratification, using plastic instead of real money, avoiding the truth, and keeping up with the Joneses) often combine to leave young adults in a bit of a financial mess… which is one reason why they may end up back on their parents’ doorstep. Some great food for thought here, and some potential topics to discuss with your adult kids as part of your budgeting process for their stay at home.
I tend to get asked the same questions over and over by both parents and reporters, so this week, I’m posting answers to these common questions here on the blog. I hope you find these Q&As helpful. If you have your own question you’d like to see answered on the blog, please leave it in the comments or send me a note at email@example.com.
Today’s question: Should adult children living at home pay rent?
Answer: Every family will need to work out a budget to determine how much the child should pay, but I definitely encourage parents to charge rent of some sort. It will not likely be market rent, as the adult child is probably living at home to save money. But there should be some sort of financial contribution for a couple of reasons. First, it realistically costs money to have the adult child live at home in terms of added heat, electricity, food, and so on. Second, it helps the adult child get into the pattern of having a monthly bill to pay, which they will when they eventually manage to move out. And third, it’s actually helpful to the child’s self-esteem to make a financial contribution to the household. Make sure to put a budget together so the adult child can understand their financial impact on the household, or they may end up under the mistaken impression that it’s free for the parents to have them live there.
Reuters has published an excellent article with tips on how to claim your adult children on your taxes if they are your dependents. They advise that determining whether your adult children qualify as dependents can be like “threading a needle in dim light.” But each dependent can cut your taxable income by $3,700 or more. Essentially, if you are paying 50% or more of your adult child’s expenses, it is worth reading the Reuters article to get the details, even if you adult child is not living at home. You can find the Reuters article here: Tax tips for the sandwich generation
Reuters has an article that all parents with adult children living at home should read before sending off their taxes. According to the article, low-income adult children could save you up to $6000 in taxes. That’s a significant savings that will make a big dent in the extra expenses your adult child is adding to your household! You can read the article by clicking here.
Today, I provided some key tips for a story on Reuters.com about how boomerang kids moving back home can impact your budget. Here’s a quote from the article that all parents thinking about welcoming boomerang kids back home should keep in mind:
“There’s a misconception from the adult children’s side, and sometimes from the parent’s side as well, that it’s free to have the adult child come and live at home as long as the room is there and available. That’s just not true,” Newberry says.
You can read the whole article on Reuters.com here.
I’ve talked before about some of the issues you should address related to your adult children and insurance. Today I just want to point you to a great article from The Gainesville Sun on the gap in coverage some adult children are facing since they can’t be added back to their parents policies until health plans renew coverage. You can find it here.
It’s natural for parents to want to support their children, even as those children reach adulthood. But in tough economic times, parents must remember to look after their own financial well-being as well. Adult children may struggle financially, but they have many more years of full earning potential ahead of them than their parents do. So, parents need to be careful about jeopardizing their own financial situation to support adult kids.
Mark Patterson, a writer for usnews.com, shared the following two tips as part of a recent article on “attitude adjustments necessary for retirement success.”
1. Your retirement is more important than your kids’ college education.
2. Your retirement is more important than your kids’ lifestyle.
To view the full text of the tips, plus the three additional attitude adjustments Patterson suggests, click here.
Dallas Dirt, a real-estate publication in Dallas, Texas, recently published a poll asking readers whether adult children should pay rent when they move back home with their parents. The possible answers to the poll are:
Yes, after college, absolutely.
Not if they are in graduate school. After grad school, yes.
Only after they have been working for awhile, to help them “get on their feet”.
No but they should still contribute to the household financially and physically (chores).
Grown kids should never return home to live with mom and dad.
It’s up to the family to decide this case by case.
Daddy should always pay for everything!
The minute they turn 18 they should contribute to the family.
I’m not loving any of these possible answers. This is a complicated topic with no simple answer. I think the best answer is “It’s up to the family to decide this case by case,” except that in all cases the adult child should contribute *something* every month — if not cash, then they should still be paying a set amount of “rent” by working on extra projects around the house, like cleaning the gutters or painting the garage. (You can see my thoughts on adult children paying rent when they move home in the video here.) So, I guess if I were to write a possible response, it would be: “Yes, but the family should decide what amount makes sense based on their particular situation, and if no money is available, the adult child should work off the rent by doing extra jobs around the house (not regular chores).”
If you want to vote in the poll, you can do so here. If you’d like to see the results (in which a shocking 9% say Daddy should always pay for everything — I suspect those votes didn’t come from parents!), you can find them here.
USA Today recently published a piece with some great tips and answers to common questions about how to add your adult child to your health insurance policy under the new rules. You can find all of those tips and FAQs here.
There’s a lot of talk these days about the new health bill and its implications for health insurance for families with adult children living at home. But health insurance isn’t the only kind of coverage you need to think about when an adult child returns home. What about homeowner’s insurance and auto insurance? A recent article from TampaBay.com addressed these questions. You can find it here.