So much for the empty nest. Adult children are increasingly opting to live with parents — either returning home after university or college, or just staying put after high school.
According to the U.S. Pew Research Center, for the first time in 130 years, living with an adult parent is the most common arrangement for adult children between the ages of 18 and 34. Pew pegs declining marriage rates among young adults as the main driver of this trend. Financial considerations contribute, too. If you’re juggling paying off student loans with an entry-level salary, staying in the family nest can be practical.
Even if you are a parent thrilled to have the company, laying down some financial rules is smart. Your kid, after all, is an adult who needs to take some responsibility for their future. And you may have to create a framework for that:
1. Make sure student loans are being repaid. Within six months of leaving school, borrowers in Canada and the U.S. must begin to repay their federal student loans. Failure to meet this deadline will hurt your child’s credit score. A low credit score may make it hard to qualify for loans. Maybe your kid isn’t buying a car or a home this month, but when the time comes, they will benefit from a strong credit score.
2. Insist on at least one credit card. One thing millennials get so right is their preference for using bank debit cards. But payments on credit cards are part of calculating credit scores; debit transactions aren’t. In your 20s, you want to work on building solid credit scores. Opening one credit card account and setting up one or two small recurring payments (perhaps for Spotify or other streaming services) is smart. Also, set up automatic bill payment from a bank chequing account, so those small charges are paid off in full every month
3. Charge rent. Doesn’t matter if you don’t need the money. If your kid is earning an income, charging monthly rent is how you help them build adulting muscles. Doesn’t feel right? Take the money and set it aside in a savings account for them. That can help with a rental security deposit, jump-start an emergency savings fund or be used toward a home down payment.
The best way to put this into action is to have your child set up an automatic monthly transfer to you from their bank account.
4. Consider weaning them from family plans. Adult children in Canada can stay on a parent’s health care plan up to age 25 if they’re still in school (26 in Quebec) and up to age 26 in the U.S. If their employer doesn’t offer health coverage, it may make sense. But how about having them cover their cost of your premium? And have them check out buying their own coverage. Premiums are lower for younger adults, and a child on a starter salary may qualify for a subsidy.
Having young adults take responsibility for their cellphone plan can help build their credit score; again, setting up auto-payment is key.
5. No co-signing loans for new cars. Used cars are a fraction of the price of new cars. Ideally, you want your kid to get a loan on their own, but if you do decide to step in, insist on a car loan — not a lease — and only for a used car.
6. Help them nail compound growth. When adults in their 40s or 50s are asked what financial regret they have, the most popular answer is typically some version of “Oh, if only I had started saving earlier.”
If your child has a retirement plan at work, make sure that they are contributing enough to qualify for the maximum company match. (Many employers automatically enrol new workers in their plan, but often set the contribution too low, causing the new employee to not qualify for the maximum company match.)
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