Stuck in the nest: Are adult kids living at home hurting you financially?

Published on: November 12th, 2019

At a time when housing affordability and non-existent wage growth are both hot topics, it’s not surprising to see a trend of adult children living at home with their parents for longer. In times past, it was not uncommon for kids to leave home right after school, but now we see them living at home well into their late 20’s and 30’s.

For parents, while having the kids at home might be ‘nice’, what’s the impact longer term regarding your finances? And for those likely to have adult children still at home, do you need to factor it into your planning earlier in life?

Financial realities rule

While there might be a number of reasons your children stay in the nest longer, it’s often overwhelmingly based on finances. Rents in our major capital cities have risen substantially in the past 10+ years, particularly in suburbs where it’s desirable for Gen X and Y adults to live. With housing affordability such an issue, even after downturns in Sydney and Melbourne in recent times (which we all now acknowledge is over), it’s tougher than ever to save for a deposit, particularly if you’re a single looking to buy on your own.

It’s a very different generation to the ones that went before it. Older generations had a savings mentality, where a focus on setting yourself up for life started from the minute you left school and entered the workforce.

Millennials tend to delay life decisions, such as starting their career or a family, in favour of life experiences, such as travelling or living overseas or interstate. That delay means that they’re often staying at home longer, rather than seeking to push out on their own. There’s also a description for those that leave, for example, to live in another country for a number of years, and then return to live at home with their family. Called ‘Boomerangs”, there’s been a statistical rise in the number of adult children treading this path.

All of it adds up to having your kids home for longer.

Changing financial behaviour

While it might be a reality that they’re home longer, there are some financial areas that, as parents, you can look to in helping your children head out on their own.

  1. Set the right behaviours early: One area that I believe will make a real difference is in how you encourage your children to manage their finances. A lot of financial behaviour is learned, i.e., the way you use money will rub off on your children. If you start early by encouraging the right behaviours around cash flow and saving, you can help your kids avoid bad money management values later in their adult life.
  2. Encourage financial independence: Following on from the point above, I would also encourage you to manage the living arrangement with your adult children in a way that has them contribute. For example, charge them for rent and other household costs, such as food, telecommunications, Internet, etc. Make sure they’re contributing and not just getting a free ride off your existing spend.
  3. Make it a reality and enforce it: The next thing I’d encourage you to do is to ensure that any rules around sharing of costs etc., are spelled out upfront, particularly for those ‘boomerangs’ coming home. Make sure everyone is clear on how it’s going to work and, most importantly, enforce it. While I’m not suggesting you set it all out in a formal document, it can help to write it all down so that everyone is clear on what the expectations are upfront.
  4. Help out if you can: If you’re in a fortunate enough position to help, you can always look at financial ways that you can jump-start their move out of the family home. Whether it’s help in saving for a deposit, or going guarantor on a loan, there are options you can use. However, there is a potential financial cost, so ensure that you have spoken with your adviser before making any financial moves.

Need a better plan?

The best way to manage your finances is to ensure that you have a solid plan in place, which includes the provision for having the kids at home for longer. We offer the opportunity to discuss your financial situation with no obligation, so talk to us about how we can help you better manage your finances.

General Advice Disclaimer

The information in this blog is provided by Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) and is of a general nature only. It may not be relevant to your personal needs, objectives or financial circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.