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Financial Education for Everyone

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March 21, 2008

If you're a parent looking forward to having an empty nest, you may need to adjust your expectations. Faced with burgeoning student loan balances, high rents and a stagnant job market, increasing numbers of adult children are opting to move back in with their parents to get a financial leg up.

Although these arrangements often work out fine, friction can arise over misunderstandings about household rules, chores and responsibilities, and financial contributions. Plus, middle-aged parents can get caught between extending support to their grown children while also needing to assist their own aging parents - thereby seriously undermining their retirement savings goals.

Here are a few tips to lessen the impact of the "boomerang kid" phenomenon on your household:

Establish house rules. You wouldn't let a tenant move into your home without first establishing ground rules and the same should go for an adult child.

Make sure you both understand this is a temporary situation, not a return to carefree adolescence. Many people find it helpful to draft a contract specifying duration of stay, room and board contributions, savings goals, allocation of chores, and other terms.

Do a financial audit. Sit down together and tally up your kid's outstanding debts, including student loans, car payments, other loans and credit card balances. Then add up their necessary expenses, such as food, transportation and health and car insurance. Note that ski weekends, iPods and new outfits don't qualify as "necessary."

Next, weigh outstanding debts and monthly obligations against current income. (There's probably not enough coming in to cover the bills; otherwise they wouldn't be moving back home.) Stress that making only minimum credit card payments can extend debt for years and add significantly to interest charges. Also, falling behind on payments even once or twice can seriously impact someone's credit rating. For more on credit scores and ways young people can establish a sound credit history, visit www.WhatsMyScore.org.

Reality check. Boomerang kids often fall into the trap of not reining in their spending after moving back home. Sure, having their parents cover the rent boosts spending money and takes away some urgency in paying off bills. But all they're really doing is delaying financial independence while simultaneously draining their parents' retirement savings cushion.

Budget pow-wow. If your finances are going to be intertwined for some time, hammer out your budgets together. Parents: Share lessons you've learned about living within your means. Be candid about past mistakes to save your kids from similar grief. For a refresher course in setting up a workable budget, visit Visa Inc.'s free personal financial management site, Practical Money Skills for Life, which features several online, interactive budgeting tools that can help (www.practicalmoneyskills.com/budgeting.)

Share the load. Many financial experts recommend that grown children should pay a portion of household expenses. The idea is not to drag out your kid's financial dependence on you, but rather, to instill a sense of responsibility while providing an environment where they can get back on their feet. Parents who can afford it sometimes put the money aside in an interest-bearing account so that when junior moves out for good, he'll have an emergency fund that can stave off another boomerang episode.

Hopefully, you've raised your kids to understand the value of money and this is just a temporary setback. If not, you've both got your work cut out for you.

