The Money Question: Budgeting for Adult Children
Q. Our son, a recent college graduate, has a job but doesn't make enough to live on his own. So he moved back in with us. We want to set some financial ground rules. Can you advise us?
A. First, congratulations. Your son has a job, which sets him apart from 54 percent of recent college grads. But even before the economy soured, fewer and fewer entry-level jobs paid enough for young adults to fully support themselves. So it has become normal for "boomerang generation" kids to return to the nest. This presents a great learning opportunity for parents and kids alike, but only if you establish some financial expectations from the get-go.
Explain your reasons Obviously, your son has moved home because he needs a roof over his head. But you need to rewrite that script into something more positive and proactive: He's living with you because it will give him experience at a low-paying but career-track job, or perhaps through unpaid internships or additional schooling. In effect, you're subsidizing his get-a-foot-in-the-door efforts.
Create financial expectations There's no one-size-fits-all formula for determining what a grown child's financial responsibilities should be. Ideally, he can at least pay for his social life and routine car costs. Charging him rent, if feasible, has several pluses: It creates a sense of independence and adulthood, gets him used to living on a budget and keeps him from being dependent on your financial support. Base the rent on a reasonable percent (which only you can determine) of what he'd likely pay on the open market. Don't worry, you generally don't need to declare this money on your taxes. But you also can't claim him as a dependent unless he's under 24 and a full-time student or makes less than $3,700 in annual gross income.
Encourage him to save Unless you truly need his rent money, stash the funds in an interest-bearing account to give back to him when he moves out. Better yet, if your child is responsible, skip the rent and have him deposit the monthly amount directly into his own savings account. That way he begins to build good financial habits.
Clarify the rules Most experts recommend formalizing rent and other financial arrangements via a written contract such as a lease. That's not a bad idea, but few of my clients want to be so official with their kids. So a verbal agreement is fine: Just make it during a sit-down conversation about this issue. And whether your son pays rent or not, explain at the outset that you expect him to lend nonfinancial help, such as mowing the lawn or shoveling snow, in addition to doing his fair share of everyday household chores.
Don't overextend yourself Stocking your refrigerator for an always-hungry 20-something can be expensive (not to mention higher-than-usual water and electric bills). But you should not neglect your own needs. Having an adult child at home should never be a reason to reduce your 401(k) contributions or delay plans to downsize to a more affordable home.
Resist the urge to coddle The basic idea is to foster your son's independence while letting him know you're there for him if, say, his transmission dies or he needs a new suit for an interview. But if he blows a month's spending money on a single night out with his buddies, let him suffer the consequences. This might seem harsh, given that he's strapped for cash, but he'll never learn how to manage money if you constantly absorb the costs of his mistakes.
Help him find the exit Most of my clients' boomerang kids move out within six to 12 months. But there's no need for an exit plan; you'll know when the time comes. Your son might get a bump in pay or his rental nest egg could become large enough to help him go it alone. He might even find friends who need a roommate, have to relocate for a job opportunity or simply reach a point when he's emotionally ready to leave. You may still need to give him some support. Just keep your focus on career-related costs, not on any entitlements.
Linda Perlman Gordon is a clinical social worker and coauthor of Mom, Can I Move Back in With You? A Survival Guide for Parents of Twentysomethings. Her financial advice has appeared in Money, Forbes and The New York Times.