What Empty Nest? Adult Children Living at Home

(CA.ARA) - Adult kids are staying at home with their parents much longer than in past generations and this is having a real impact on the pocketbooks of many Canadian parents.

According to new information from Statistics Canada, over 40 per cent of adults in their 20s lived with their parents in 2001. For males, the 2001 number is 47 per cent, up from just 27 per cent in 1981. The trend is a by-product of several social phenomenons, including an increased need for higher skill levels and education to get jobs in a rapidly advancing new economy and a much later average age for marriage. These factors are extending the time that young adults live with their parents. "The empty nest isn’t always empty so soon,” says Ron Zaporzan, director of advanced financial planning at Investors Group. “This new reality is creating increased financial pressures that parents hadn’t counted on when their children were smaller. Parents need to wisely address this increased cost so as to keep their personal retirement plan on course.” Depending on how much support is needed and how much parents are willing to provide, an adult child can cost parents hundreds or even thousands of dollars per year. But since most working parents are still saving for their golden years, bankrolling an adult child can put significant strain on their financial plan.

Parents should not forget it’s their choice to allow a young adult to live at home. It’s sometimes hard to let go of the parenting role, but it’s best to treat an adult child as an adult and to try to replicate the conditions of the “real world.” If an adult child isn’t in school and hasn’t found a job already, they should be actively looking for work.

“It is also important for adult children to contribute financially and operationally to the household,” says Zaporzan. “Parents should spell out what contributions will be required -- whether, in the form of chores such as laundry and cooking or sharing expenses such as utilities, food and room and board.”

Zaporzan also suggests that a more aggressive step parents can consider is to create a written agreement so that both parties understand and agree to the terms of the deal, whether monetary or otherwise. Parents may find this particularly useful if their children don’t hold up their end of the bargain and they want to consider alternative arrangements. A written agreement can be an invaluable way for parents to keep their financial plan on track and to hold adult children accountable for their responsibilities in the home.

Often parents feel their children can’t make it without their help. For example, a young adult may come home with credit card or other large debts and it’s tempting for parents to help out.

Bailing kids out consistently is seldom the right solution, especially if parents deplete their own retirement savings and potentially create a large tax bill for themselves. Young adults need to learn effective money management and a good first step is taking full responsibility for their own bills.

Parents should also be aware that sometimes when they “loan” money to a child, they consider it a gift and it never gets paid back. A good idea is to consider a written loan agreement with a structured repayment plan and a market rate of interest.

“There is some good news too,” says Zaporzan. “Although having adult kids at home may put a pinch on personal finances, parents may also be able to save a little, too.”

For example, if their children are students and have no tax to pay, they can transfer up to $800 in unused tuition and education credits (combined) to a parent. As well, parents should remember that rent collected is considered to be income for tax purposes. However, deducting a portion of the home expenses such as utilities, insurance, maintenance, property taxes and mortgage interest can offset some or all of the income.

Talking openly with adult children about money and responsibility is important throughout their time at home, says Zaporzan. By allowing adult children to live at home, parents can help provide them with a good start on their careers and life as independent adults. It is also important, however, that this hand up doesn’t come at the expense of a parent’s own financial plan.

Courtesy of ARA Content