Can you afford to let your kids move back in?

You can call them Boomerang Kids. You can call their plight Failure to Launch Syndrome. Whatever you call it, the fact is this – young adults are coming back home more than ever before.

Today’s young adults are twice as likely to move back home than their parents were a generation ago. There’s a wide variety of reasons why they’re leaning on their parents for support throughout their 20s and early 30s. In most cases it’s a combination of rising student loans costs coupled with an economy that isn’t producing the kind of entry level jobs young professionals require.

Whatever the reasons, parents now find themselves supporting their children longer than ever before. And while parents are generally happy to provide this kind of assistance, it can have a devastating effect on their goals, including retirement plans. The parental instinct to take care of your children almost never goes away, but at what point do parents need to start worrying about their own financial wellbeing?

The luxury of home

In the first few years out of college, in one of my earlier jobs, I had a co-worker who was roughly my age. For most of the time I worked with him he lived in his parents’ basement.

Now, the adult male who lives in his parent’s basement is a popular comedic trope. When you say, “I bet that guy still lives in his parents’ basement” you’re more or less calling someone pathetic.

But this former co-worker – who lived at home throughout college and during the first five years of his professional career – was far from pathetic. In fact, you could argue he was smarter than most. Because at the end of those five years, while I was still struggling to save any money at all, he was able to buy a house, all on his own.

Speaking to the Canadian Broadcasting Corporation (CBC), CNN business correspondent Christine Romans explains that young adults today are burdened with more debt and fewer options than previous generations. “The biggest financial advantage they have is living at home and taking the rent part off of the table.”

Nowhere else to turn

Writing for The New York Times Magazine, reporter Adam Davidson says, “Since 1980, the U.S. economy has been destabilized by a series of systemic changes — the growth of foreign trade, rapid advances in technology, changes to the tax code, among others — that have affected all workers but particularly those just embarking on their careers.”

While many financial experts suggest using a return home as a strategy for stabilizing your finances during those typically unstable years following college, for many young adults it’s not a strategy at all – it’s the only option they have left.

As Davidson notes, “Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree.”

Where once it was an employer’s responsibility to provide their new employees with the skills, training, and experience necessary to succeed, now applicants are expected to have many of those qualities already in hand before they’ve even submitted a resume.

In other words, “Boomerang Kids” is a fitting name. The boomerang, remember, doesn’t really come back because it wants to. It comes back because that’s what it’s designed to do.

A parent’s responsibility

According to a recent survey from TD Ameritrade, approximately 20 percent of Generation X and 25 percent of Baby Boomers are financially supporting at least one adult family member, including adult children or parents. On average, that financial support comes to about $12,000 annually (not including cost incurred by those who act as full-time caregivers for infirmed family members).

Nearly a third of those who provide such support have already been forced to delay retirement. Meanwhile, 22 percent have had to dip into their savings and 30 percent have had to make lifestyle changes in order to accommodate this unexpected financial challenge.

Parents, of course, are often happy to make these sacrifices for their children. (Speaking from personal experience, I still get unsolicited offers to reclaim my old room on a semi-annual basis, despite being largely debt-free and gainfully employed.) But just because a parent is happy to give this support, it doesn’t mean they necessarily should.

Deciding what’s best for everyone

When your child is in need, it’s pretty hard for a parent to say no. If your child needs to return home, or is hesitant to leave in the first place, that’s okay, but only if you understand and plan for the financial impact.

• Review your household budget beforehand. Decide what you can afford to spend to support your child and what impact those costs are going to have.
• Discuss their ability to contribute financially. Can they help defray certain living expenses? Under certain circumstances, having a wage-earning child living at home can actually be financially beneficial for all parties.
• Set a timeline. Make sure everyone has a clear understanding of how long the arrangement will last. If you reach the end of the agreement and want to extend things, you can do that. Just make sure you discuss it and set a new timeline.
• Be honest. If your parental need to help your child starts bumping up against your other needs or personal goals, that’s going to cause some friction. Be open and honest about what you’re willing and not willing to do for a loved one.

There’s no doubt that providing financial support to an adult child can create an economic strain, but parents are more likely than not to do it anyway. If you’re called on to provide unexpected financial support to your child, don’t just say “yes” without considering the consequences. Make a plan and get everyone on board. Having a thorough discussion before making any big changes can save you from a lot of headaches and heartaches down the line.