By Carla Turchetti
Once upon a time, college graduates clutching their new diplomas left the comfort of academia for a new job, a new life and a place of their own. But these days, graduates are more likely to head right back home to Mom and Dad.
A Pew Research Survey conducted in 2011 found that 53 percent of 18-24 year olds were either living at home or had moved back in with their parents in recent years. Considering the rising costs of education, this is not surprising. The Consumer Financial Protection Bureau reports that there is more than $1 trillion dollars worth of outstanding student loan debt in this country; and educational debt is growing at a rate faster than credit card debt. College graduates often come home with heavy financial baggage as they struggle to make ends meet on starter incomes while paying off student loans.
But in a shaky economy and tough job market, older children are “boomeranging” as well. By breaking down U.S. Census Data, the Pew researchers also found that 25-34 year olds were among the most likely to be living in a multi-generational household.
Dr. Robi Ludwig, a psychotherapist who partnered with Coldwell Banker Real Estate on a 2013 Boomerang Kids Study, breaks these returnees into two categories. “Perma-children” regress into old behaviors, contributing little to the household and using their money as disposable income. They could remain in this state of limbo indefinitely. The other group sees themselves in transition, working towards their independence with a defined goal in mind, whether it’s purchasing a house, saving for graduate school, or some other objective.
Armen Khadiwala, a wealth management advisor with Northwestern Mutual, based in Englewood, Colo., believes parents can help ensure their children fall into the latter category. "I do believe in making them put money aside to get them on their feet. Forcing a savings strategy would be completely appropriate."
Khadiwala also believes that a big part of that strategy should be encouraging them to pay themselves first. He recommends that they set aside 20 percent of their income, because if they get comfortable with saving a percentage of each paycheck, they’ll be more likely to continue that pattern through the years.
For boomerang kids, his advice is simple: "Create an opportunity to put money away for yourself first and then pay down your debt. Beginning with the first paycheck, put away two out of every 10 dollars you make. Put it somewhere for the future."
While parents should always avoid becoming their children’s ATM machines, if your child is starting in a low-income job, you may want to consider a matching program. For every dollar they save, you can contribute an additional percentage into their savings account, not into their pockets.
Another tactic is to determine how much they can afford to pay in “rent”, and then place that amount into a savings account for them. Not only will this help them reach financial independence faster, it also prepares them for the monthly rent or mortgage payments they can anticipate when they’re on their own.
To avoid getting stuck in a financial rut, it’s essential for boomerang kids to establish a clear savings goal up front and map out a realistic route to achieve it. A savings calculator may come in handy to help them determine exactly how much they need to put aside and how much time it will take. They can also see that, by stretching to save, they can gain their independence faster.
From the parental point of view, keep in mind that even though your children are adults, your attitudes and behaviors still have an impact on them. The Coldwell Banker study revealed that parents generally feel that it’s acceptable for kids to return home for a number of years. Ludwig cautions against falling into a pattern of “perma-parenting”, or allowing your child to live free of charge or responsibility while they are supposed to be learning self-sufficiency.
“The economy may be a reason to move home temporarily, but you can’t let the state of the economy get in the way of living your life,” said Ludwig in a statement about the study results. “The key to deciding if this living situation is right for parents, children and families is figuring out whether or not it will help the child develop and thrive.”
By working with your adult children to identify knowledge gaps and providing the right incentives, you have a second chance to prepare them for the world. With a little guidance and solid advice, you can ensure that when your boomerang kids finally do leave home, they’ll be headed for brighter financial futures.
Carla Turchetti is a veteran print and broadcast journalist with a passion for money matters.
