The after-college situation has changed a great deal from a generation ago. At least 66% of college graduates earn their degree by taking on a significant amount of debt, which hangs over their heads long after final exams are over. The average class of 2015 graduate with student-loan debt will have to pay back a little more than $35,000, according to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, a group of websites about planning and paying for college. Even adjusted for inflation, that’s still more than twice the amount borrowers had to pay back two decades earlier.
This student loan debt, combined with credit card balances that may have gotten out of hand, makes it very easy for graduating seniors to become part of the “boomerang generation” who move back in with their parents following commencement. For those who don’t have a job waiting for them after graduation, moving home can be an economic necessity. For those with jobs, moving back home is a way to live inexpensively and save money for a major purchase such as a car or home.
It is fine to have family members move back home, as long as their presence does not jeopardize your retirement savings or add to the expense and strain if you are also taking financial and physical care of elders. However, before any child moves back home, it is crucial to lay down some ground rules and discuss expectations so you don’t end up ruefully thinking you should have changed the locks.
Here are several recommendations to consider before welcoming your college graduate back to the family home:
Promise not to overextend yourself.
Don’t allow the return of the prodigal son or daughter to derail your own retirement or debt repayment plans. Your child is old enough now to understand that you should be helping each other and that this is a short-term situation.
Your house, your rules.
Your child is now an adult. This does not mean they can live in your home without any limits or rules: it means setting up specific rules and responsibilities for family members who benefit from your generosity. It is probably a good idea to insist that your child pays some kind of rent. Discuss and agree, in writing, about the terms for household expenses and what services, if any, you will provide and what chores they will perform as “in kind” support for the household. To ensure that there are no misunderstandings about non-financial issues, talk about things such as how much “stuff” they can bring with them, what your overnight guest policy is, and how often you would appreciate them checking in with you.
Supervise their financial planning.
Do not financially bail out your child. If you have not already instilled in them good financial habits, work with them to set a budget after you both figure out their net worth: a real eye-opener for many young adults. If it won’t strain your budget or long-term financial goals, you can consider matching the amount that they are putting toward debt or a home down payment each month. Consider paying for some basic financial planning for your new graduate as a graduation present. (On our website, check out our First Step Financial Plan service that provides initial financial planning assistance.)
Keep records.
Track payments, chores and other in-kind efforts made by your “tenant” during the term of his or her stay. It’s a way to look back and see what’s gone on during this phase in your relationship.
Do you really need to charge rent?
If you are in a relatively good financial position and you don’t need your child’s rent to pay your bills, you might consider investing those amounts for your child’s benefit for a home down payment, car purchase or a wedding.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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