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Parents with Adult Children at Home Should Ensure Household Finances Work for Everyone

A lot of us are very glad to see 2020 in the rearview mirror. The pandemic has impacted nearly every aspect of our lives.

One of the phenomena that is happening more and more is that young adults have decided to move back in with their parents. Typically, this is due to a job loss or a reduction in hours but sometimes it could be a strategic move, say to save money for a home purchase.

Whatever the reason, many parents are happy to have their kids back home and there is a natural tendency to want to “help them out,” if you can. However, it is important for them — and you — that you don’t make their stay too comfortable. One danger is that the adult kids will not be motivated to leave. The other danger is that it might set you back financially. So, what are the things you need to be thinking about if your adult child moves back home?

It is important to set the ground rules on day one:

How long will the arrangement be in effect? Is this a short-term situation with a fixed end date? If yes, make sure all parties are aware of the timeline. If the arrangement is more open-ended, at least consider agreeing on a “target” end date – perhaps a year or two from now?

Will rent be charged? If yes, what is the amount and payment date and what are the consequences if the rent is not paid? Some parents might think it feels harsh to charge rent but if no rent is paid, you may be encouraging chronic under-employment.

How will other expenses be handled? With another person living in the house, the grocery bill will certainly go up. Other costs may go up as well. For example, a faster internet setup may be required now that more people are sharing the network. Heating and air conditioning expenses will also likely change. Also, will the adult child be using the family car? If yes, they need to be added to the auto insurance and you need to decide who will be paying for the gas and repairs.

Clearly, there will be lots of details to work out.

A Potential Solution

Consider drawing up a move-in agreement that both parties would review and pledge to adhere to. As an example:

“Bob will be moving in on March 1 and staying for a period not to exceed one year. Rent in the amount of $500 per month will be paid on the first of each month and $50 will be contributed each week to the cost of groceries and utilities. Bob will be responsible for purchasing his own toiletries and personal items. Guests are permitted but they must leave by 11:00 PM. Smoking is not permitted at any time. This agreement will be revisited and updated on a quarterly basis.”

While it may be awkward to be so formal, drafting and signing such an agreement can help avoid misunderstandings and hard feelings.

If the person moving back is unemployed, the agreement can be changed to reflect that. Instead of rent, there could be an agreement that the person moving back in will be responsible for the grocery shopping and cooking dinner three times per week or assisting with home maintenance projects.

Unexpected Costs

Be mindful of the expenses that creep in over time because they can really add up. Resist the urge to say that you are going to the market and asking if the kids want anything. Before you know it, the grocery bill will double. Along those lines, if you go out to dinner as a family, will you be paying for their dinners as well? Will you care if drinks and desserts are ordered? That’s a slippery slope, right? What about travel? If you go on a vacation will the adult kids tag along? Will you be paying for their travel expenses?

All these scenarios should be covered in the move-in agreement. At the extreme end of things, is having an adult child at home preventing you from downsizing? Are you keeping the 4-bedroom colonial and the associated property taxes instead of buying that condo that you have had your eye on? That can be a very expensive accommodation, especially if it goes on for more than a few months. The Wall Street Journal reported that an adult child moving home could cost their parents between $5,000 and $18,000 per year.

If you are providing support to an adult child and you aren’t sure if you can afford to do so, you may want to check in with a CFP® professional to be sure you are on track. Use the Find a CFP® Professional tool to locate an advisor.

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