Millennials and their delayed entry into financial adulthood remain a subject of public fascination, scrutiny — and even scorn. Five years ago, a Pew study of U.S. Census data found that 16.3 million millennials were still living at home, even more than during the housing bust and subsequent recession. Immediately, newspapers printed blistering headlines calling on the 18- to 31-year-olds to get their act together: “Millennial Moochers” and “Dear Millennials: You’re Ruining the Economy. Move Out.”
Despite this onslaught of public censure, millennials are not taking the hint. A new Country Financial Security Index survey of 1,000 adults suggests, if anything, this trend has become even more entrenched. More than half of Americans age 21 to 37 have received financial assistance from a parent, guardian or family member since turning 21.
In fact, 37% of them receive money monthly from their parents. Almost six in 10 receive money a couple of times a year. Given this ongoing financial dependence, there is a growing gap between the age most Americans feel like an adult (18 years) and when they feel they should reach financial adulthood (25 years).
The immediate inclination might be to think of this in negative terms — a “failure to launch” or overprotective parents stunting their offspring’s growth by letting them back into the nest. However, as financial professionals know, the reality is more multi-faceted. millennials are living with their parents longer because they’re struggling with mountains of student loans. Americans owe more than $1.48 trillion in student loans — over 20 times more than the country’s total credit card debt. The average graduate from the class of 2017 left college with $39,400 in debt.
The rules of the financial game are different in many ways than they were 10, 20 or 30 years ago. Consequently, it’s time for financial professionals to reshape the notion that a millennial who receives financial help from their parents is lazy or entitled.
Rather than being a failure to launch, moving back with mom and dad could represent a responsible choice, as long as it’s coupled with a realistic assessment and a plan for the future. With these arrangements becoming more common, financial planning can play a key role in ensuring that this move is a positive situation that benefits both the parents and their offspring. A financial professional can meet separately and/or jointly with parents and the adult child, helping them sort through complicated decisions. Their role can help to:
Provide a buffer. An older child moving back home is a situation fraught with anxiety. A neutral third party can minimize these issues by helping the parent and child develop a constructive financial strategy for the arrangement, putting clear financial goals in place, while providing a much-needed buffer that can minimize the emotions that, unchecked, can lead to hurt feelings and bad decisions.
Develop a plan. Before an adult child moves back home, everyone involved should have a clear game plan — such as the child will live at home until he or she gets a job, saves up a specific amount for a down payment on a house; or reduces his or her debt by a specified amount. The goals should be tied to specific time frames, providing incentive for the child to work toward financial independence.
Spell out responsibilities. Before the child moves back home, everyone should be clear about their responsibilities regarding household duties and expenses. Debbie Pincus, a counselor and author, says parents should be aware of the difference between helping their children and “over-functioning,” meaning taking responsibilities for things the child can do themselves, like laundry. Some parents will support their child in many ways, such as adding them to their health insurance or letting them use their car. If the parent chooses to do these things, it’s important to delineate the cost to the child, making them understand the financial implications of every decision.
Set a budget. The financial professional can help the parents and child work out a budget that takes into account expenses, savings and discretionary savings. Some take a creative approach; instead of having the child pay rent to the parent, the “rent” amount is put into an account tied to the specific financial goal, such as saving for the house down payment.
Weigh trade-offs. A financial professional should stress that while parents understandably want to help their children, they shouldn’t lose sight of their own financial needs or retirement goals. This conversation can help the parents understand how much they can afford to give the child, analyzing the long-term impact of any decision, such as having to reduce the number of vacations they take in retirement.
Delayed financial adulthood is rapidly becoming the new norm. Rather than evaluate the new realities based on old economic thinking, children, parents and their financial professional should work together to create a winning situation, providing strong financial underpinnings to any support the parent provides. Living in the basement isn’t a situation that should be in the shadows anymore — it should be done as a smart financial move with a plan that takes steps to financial independence.
Doyle Williams is an executive vice president of Country Financial with a broad insurance and financial services background. Doyle leads his team on a variety of topics including investments, insurance and financial planning.