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How a Child’s Return to the Nest Burdens a Nest Egg

Boomerang children are creating financial headaches for their parents, including compromising their retirement plans, a new study found.

According to a recently released poll Harris Interactive conducted on behalf of the nonprofit National Endowment for Financial Education, 40% of U.S. adults ages 18 to 39 who are not students either currently live with their parents or have in the recent past.

The trend is creating financial strains for the older generation. Among the parents:

  • 26% have taken on debt
  • 13% have delayed big plans, such as a marriage, vacation or the purchase of a home
  • 7% have delayed retirement

“Many parents are sacrificing their long-term financial health to help their adult kids,” says Patricia Seaman, senior director with NEFE.

The trend is being driven in part by the economic downturn. While the overall unemployment rate was 9.1% in August, it was 25.4% for teenagers; 14.8% for those ages 20 to 24; and 9.5% for those ages 25 to 34, according to the Bureau of Labor Statistics.

Before agreeing to take-in an adult child, Ms. Seaman says a parent should carefully consider whether the arrangement will help the child in the long-run.

“You need to understand where your adult child is coming from,” she says. “Is this a chronic problem? Does he or she live beyond their means? Or is this a one-time emergency, due to a job loss or illness?”

If the child is a chronic over-spender, Ms. Seaman recommends limiting the help you provide to advice. “You won’t do you children any favors by repeatedly bailing them out of situations that could have been avoided with careful financial planning,” says Ms. Seaman. Rather than open your home or wallet, she recommends that you “review basics of personal finance” with your child.

“Parents need to understand that it’s OK to let kids go through some hard times. That’s what most of us have done at some point.”

In many cases, Ms. Seaman adds, it is a good idea to charge rent. Some “landlords” simply aim to cover the extra expenses they incur. In that case, they owe no taxes on the payments they receive, says Jeffrey Bloom, an elder-law attorney in Boston. Those who can afford it may even return the rent as a gift when a relative moves out.

According to the NEFE poll, 75% of the adult children living at home contribute to household expenses, including groceries, utilities, and mortgage or rent.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.