Adults moving back in with their parents: A rising trend
About 36% of men and 30% of women between the ages of 18 and 34 live with their parents, according to the U.S. Census Bureau. While many adult children return home for a short period after college while they look for work, others come back for a variety of reasons—and often for longer stays. Divorce, unemployment, a high debt load, or a return to school are just a few of the circumstances under which your kids may decide to return home. Whatever the reason, you may have mixed emotions about having a full house again. You’ll likely have questions about how to make the new living arrangement as pleasant as possible for everyone involved.
Just trying to relate to and communicate with your kids as adults can be a challenge. Allowing money to become an issue will make things tougher for everyone. Broaching the topic of family finances from the start helps you to protect your assets and keep the peace.
Discuss rent and household expenses with your kid
It’s important to realize you’re not doing your kids any favors by giving them a free ride forever. The goal is to create an arrangement that both supports your children and encourages them to move on.
Start by discussing with your adult children the length of stay, plans for employment, the extent of financial support, and expectations for financial or in-kind contribution. Help your kids determine realistic steps they can take during their stay to save money, move out by a certain date, get a job, or pay off debt. Consider charging your kids rent. Start with a low rent and gradually raise it over time to give them an incentive to get back out on their own. To avoid any misunderstandings, write up a rental agreement spelling out exactly how much the rent will be, when it will be raised, and how much.
Another approach is to charge market rent—about 30% of take-home pay, or 40% if you include utilities—and put all or part of it away in a savings account that your child can eventually use to get their own place.
Whatever arrangement you come up with, be sure that the cost of your child moving back home doesn’t prevent you from making progress toward your own financial goals, such as saving for retirement. And make sure both parents agree to the new living arrangement before making any commitments.
Evaluate your taxes
Depending on your situation, you could save hundreds of dollars on your next tax return by claiming your child as a dependent or filing as head of household.
Parents generally can claim their children, regardless of age, as dependents if the children are unmarried, have less than $4,400 (for 2022) in gross income, are younger than 19 (or younger than 24 and a full-time student), and receive more than half of their total support from them. The credit for adult children is $500 per dependent. Talk to your tax adviser or check the IRS website for the latest tax law updates and advice relevant to your situation.
Contact the experts for help
If you’re still nervous about this new transition, we can help. Contact your financial institution to speak with an expert. To reach the team at White River Credit Union, call or text (360) 825-4833 or email us at email@whiterivercu.com.
