How to build a healthy financial relationship with your boomerang child

As young Americans graduate from college, they are often faced with multiple new pressures—from starting their careers to paying down student debt to managing their own money. To deal with those competing priorities, many of them may decide to move back home and accept financial support from their parents.

According to Thrivent's second annual Boomerang Kids Survey,¹ 41% of parents have an adult child currently living with them. The survey was conducted in partnership with data intelligence company Morning Consult in May 2023.

When asked why their child moved back in with them, the majority of parents surveyed cite one of these three answers: increasing rent/home prices (35%), needing additional financial support following graduation from college or high school (20%), and job loss (13%).

Boone Jackson, a Thrivent financial consultant located in St. Louis, Missouri, endorses a thoughtful approach to supporting adult children: "You've already invested heavily in their development, but they may need a little more help to stand on their own for the long- term—and that's fine."

Parents have an opportunity to instill wise financial habits ahead of their children moving back in with them. But it's critical that they then seize that opportunity. The Thrivent survey finds that, of the parents who have an adult child living with them:

• 75% aren’t discussing money management.
• 80% aren't setting financial expectations with their adult children.
• 92% haven't set a timeline for moving back out.

"It's important to have a mutually agreed-upon plan," Jackson adds. "Instead of enabling them with a free ride, you can be an advocate and a mentor by teaching them how to foster their own financial growth. For example, you can help with research on getting loans instead of taking out the loan on their behalf."

Before considering a move-in, take an honest look at your financial status. Many parents reacting out of love and concern for their kids do not consider their own finances first, to their serious disadvantage. In fact, the Thrivent survey reveals that 51% of parents have compromised on saving for their short- and long-term goals, like retirement and health care, in order to help their children financially. 23% of parents also note the inability to pay off debt due to supporting an adult child living at home.

When you review the numbers, do your best to avoid a financially perilous situation. "When I work with couples saving for retirement who are also helping out their children, I remind them that their kids can always borrow to stay afloat, but they can't borrow for retirement," says Jackson.

"And you know what? Your kids might actually benefit from a little bit of a financial burden as they're starting life, to reign in their spending," he says.

Ask yourself these four questions to determine if you can fulfill your child's request for financial help:

Think about your child's ongoing relationship with money. You don't want to penalize them if they haven't always had the greatest money management habits. But you do want to minimize any potential financial fallout that could jeopardize your retirement plan as well as other savings and your day-to-day expenses.

You also don’t want your child to overestimate your ability to financially support them. The Thrivent survey finds that, of the young adults who already live at home, 53% think their parents are financially equipped to support them for an extended period of time. But that doesn’t line up with what parents are prepared to take on. Only 16% of parents say they could provide full financial support to their adult child if they had to move back in with them.

This is a critical milestone on your timeline, with or without a boomerang boarder to consider. Once you know when you'll start living on a fixed income, it's easier to know what you can offer and for how long. As Jackson puts it: "It doesn't make sense to let your child's financial circumstances become enough of a burden to postpone your retirement."

If you're concerned about your financial future but still want to help your child, see if they will consider repaying some or all of your assistance later on. Think of it as a short-term loan, or a return on your investment for a start-up business.

It can be helpful to consult with a skilled and objective financial advisor—especially one who's helped other parents make the same financial decisions. "Having a mediator is a great idea," says Jackson. "And I'm a big advocate of financial planning. Clients who come to us for debt management and join our dedicated planning program are generally more committed to reaching the goals they set, since they're paying to have personal accountability."

Having a financial strategy can make a difference in the extent adults are able to financially support their children if they move back in. Yet only 48% of parents have a financial strategy in place.

Once you've surveyed your own finances, it's time to delve into your child's financial profile, their budget (if they have one) and their plan for becoming autonomous. Doing this ensures that you can look forward to reclaiming your empty nest and the lifestyle that goes with it.

Follow these three steps to develop a smart living-at-home strategy:

• Ask to see your adult child's budget. Work together on a realistic set of numbers, as needed. If they don't have a budget, now may be the perfect time to create one together.
• Be realistic and reasonable. Don't penalize them for seeking your help or nag them about every dollar they spend.
• Start by listing "non-negotiable needs." This can include things such as rent, car payments, student loans and other essential expenses. "Parents can help their son or daughter identify their basic needs, then work with them on ways to fund them," says Jackson.
• Identify their "wants." These may include shorter-term goals like "I want a new phone" or longer-term goals, such as "I want to buy a house."
• Consider their wishes, or long-term goals, and a plan to fund them over time. Instead of just wanting "a house," they may say "I want a house like mom and dad's house now." In many cases, people put those wishes first, mistaking them for needs—which brings on debt.

Most importantly, remember that you can help your child make a plan, but it's up to them to make it work.

"The child moving back home must realize that it's not a handout situation," says Jackson. Having something written and signed that addresses shared expenses and their short-term plans helps the child realize this is something real. You then need to decide what they will pay wholly and/or contribute to. It calls for some back and forth negotiation." Be sure to answer these questions:

• How will you calculate their rent? For example, you might charge the same amount as a local studio apartment rental or reduce that amount in exchange for work on household tasks or projects.
• Which expenses will you share? Decide what portion of utilities, housekeeping and maintenance they'll pay, or have them assume specific expenses entirely (i.e., their groceries and utilities).
• Should you save a portion of their contributions? In doing so, you can give them a "rebate" upon successful completion of their plan.

Surprisingly, parents and children may be more aligned than they think when it comes to paying living expenses. In fact, the Thrivent Survey finds more children than parents have an expectation of what they should contribute to the household:

• Groceries—68% of adult children expect to pay, while just 52% of adults expect children to pay.
• Partial rent or mortgage expenses—50% of adult children expect to help with those costs vs. 32% of adults who expect it.
• Cable/Internet—45% of adult children expect to pay, but only 19% of adults assume their adult children will chip in.
• Utilities—43% of adult children expect to pay, compared to 31% of adults who expect their help.

While your child is working on becoming financially independent, it's still important that they remember to fund their future, and take advantage of compound interest on savings. "If they're already employed, tools like a 401(k) and their company match are valuable, no matter how much or little they can afford right now," says Jackson.

"I keep hearing young adults say they'll start their retirement plans at 30," he adds. "But I remind them that if you start at 24 with $50 a month, you'll get further faster. The gains made by reinvesting proceeds and compounding can be greater than a young investor may imagine."

• Ask your child to set a goal or goals for the near- and short-term. If they're unemployed, make it a point to discuss their ongoing job search plan.
• Decide on an end date for your living arrangement.

Most of all, remain open-minded. Learn the importance of being flexible and reacting to changing financial conditions.

When you put some serious thought into how to structure your living experience with your adult son or daughter, you may not only avoid conflicts, but actually grow your relationship with them.

"America is one of the only cultures that frowns upon multiple generations living together," says Jackson. "But there can be some great positive benefits to it. In the best situation between parents and adult children living together, their bonds can strengthen, and they can help each other. It's pretty cool to see."

To learn more about how to create a strategy for supporting a positive financial relationship with your adult children, connect with your financial advisor.