Remember the comedy film, "Failure to Launch," where Matthew McConaughey played Tripp, a 35-year-old slacker living at home? That was back in 2006, when unemployment was below five percent, the real estate bubble was still inflating and the term "boomerang generation" had yet to become a household word.
Today, due to one of the weakest economies in a generation coupled with burgeoning student debt, many young (and not so young) adults have been forced to seek the refuge of their parents' home. According to recent surveys, almost a third of adults age 34 and under are living with their parents. What the surveys don't show is the toll it can take on familial relationships and finances.
If you have an adult child returning to the nest, here are four steps you can take to preserve both your sanity and your solvency:
Have A Plan And A Deadline
It's important to establish from the outset that everyone is on the same page. Sit down with your child to define why he or she will be living at home (to launch a career or business, obtain a degree, take an unpaid internship or save money for their own place) and set a time limit for how long they can stay. The deadline can be adjusted later, but it's important to have an established end date to avoid resentment and misunderstanding. If appropriate, have your child put in writing -- as a business plan, not as a legal contract -- specific steps he or she plans to take to achieve this goal by the agreed upon deadline.
Offer Help, Not Handouts
Few parents can resist giving a child with money problems a little cash with no strings attached, but be careful not to put your own financial future in jeopardy. For the best of reasons, parents often forget that the bad economy affects them financially, as well. If they're close to retirement, they may not have much time to rebuild their savings. Remember that your children have decades to build their financial security, and they shouldn't be deprived of the satisfaction and confidence that comes from doing so.
Be warned: Making things too easy for them can backfire. Adult children who get bailed out too many times may wind up feeling badly about themselves and end up resenting their parents for it. If you do plan to give money, consider making it a loan. Have a promissory note prepared and have your child sign it. Be aware that the IRS will not allow you to make interest-free loans, so you must fix a reasonable interest rate, otherwise the IRS will "impute" interest income to you and require you to pay taxes on the imputed income.
Be A Life Raft, Not A Cruise Ship
Make it clear that your role is to help your adult children become financially independent, not provide a lifestyle. Be generous with love and encouragement, but don't overdo it on the money and material goods. Providing food, shelter and help with tuition is appropriate and supportive in developing their independence. Fueling their lifestyle with extravagances, such as paying for vacations, is another story.
Foster Strong Financial Habits
Ask your son or daughter to contribute in non-monetary ways, such as doing household chores, to carry their own weight. Letting them live rent-free and lounge around the house or play on the computer all day won't help them prepare to leave the nest. Helping them budget and restructure their loans will set them on the path to gaining lifelong financial discipline. Paying off all their debt for them does little to teach them personal responsibility. Your goal should be to help foster strong financial habits that will help to re-launch them back into the world as responsible, self-supporting adults.
This information in this article is general in nature and may not apply to your own financial situation. Please consult your own professional tax advisor regarding this information and your own personal tax needs. For a complete disclosure statement, please see my biography.
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