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Family, Friends, and Finances

Build a Healthy Financial Relationship with Your Boomerang Child

January 21, 2021

Young-adult son looking over mother's shoulder as she cooks

In this article, you'll find out how to:

Figure out how much you're willing and able to help your son or daughter.
Foster your boomerang child's financial independence.

The ongoing pandemic has accelerated an already-growing trend: Young adults are moving home and accepting financial assistance from their parents at the highest rate since the Great Depression.

A recent analysis by Zillow shows that 2.7 million adults, also known as "boomerang kids," moved back home in March and April alone.

Economic conditions will continue to contribute to this rise. In fact, 16% of employers plan to decrease recruiting efforts among next year's graduating college students, with just 6% expecting to increase hiring.

So, if your son or daughter returns to your once-empty nest, are you ready to work on a sound financial strategy? 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."

"It's important to have a mutually agreed-up plan," Jackson adds. "Instead of enabling them with a free ride, you can instead 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."

Figure out how much you're willing & able to help your son or daughter

Before considering a move-in, take a frank look at your current 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, a Bankrate survey reveals that 50% of parents with adult children have compromised their own retirement savings to help their children financially. Boone Jackson, Thrivent Financial Consultant

However, when you review the hard numbers, you're doing your best to avoid a potentially 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 questions to determine if you can fulfill your child's request for financial help:

What's the potential risk of helping out my adult child?

Look back at your child's 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 standard of living.

What's my retirement target date?

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. Jackson also suggests staying on track with your long-term plans: "It doesn't make sense to let your child's financial circumstances become enough of a burden to postpone your retirement."

Should I ask my child for repayment once they're back on their feet?

If you're concerned about your financial future but still want to help your child, see if they would consider repaying some or all of your assistance later on, when you may need the financial lift. Think of it as a return on your investment in your favorite startup business.

Should we work with a professional on our financial plan?

Engage with a skilled and objective financial professional—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 fee-based financial planning.¹ Clients who come to us for debt management and join our fee-based program are generally more committed to reaching the goals they set, since they're paying to have personal accountability."

Foster your boomerang child's financial independence

Once you've surveyed your own finances, it's time to delve a bit 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:

1. Work with your son or daughter on their personal budget.

Ask to see your child's budget, if they have one. Work together on a realistic set of numbers, as needed.
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 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 these wishes first, mistaking them for needs—which brings on debt.

Most important, remember that you can help your son or daughter make a plan, but it's up to them ultimately to make it work.

2. Determine your child's household budget contribution.

"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 can I 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. (Interesting fact: Only 35% of adult children pay rent.)
Which expenses should we share? Decide what portion of utilities, housekeeping and maintenance they'll pay, or have them assume specific expenses entirely (e.g., their groceries and utilities). Three quarters of boomerang kids contribute to household expenses.
Should I save a portion of their contributions? Then you can give them a "rebate" upon successful completion of their plan.

3. Don't let your child neglect their own retirement savings.

While your child is working on the goal of financial independence, 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 the 401(k) and the 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."

4. Determine your child's household budget contribution.

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 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 can 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 a Thrivent financial professional.