Financial Planning for "Boomerang" Parents

Jun 15, 2016

MoneyLife100 Some call it a perfect storm: a tough economy, sluggish job market, and burdensome student loan debt have created an environment where once-empty nests are no longer all that spacious. A 2015 study from The Pew Research Center revealed that 16.3 million millennials live with their parents, up from 13.4 million in 2007. If trends continue, that number is sure to rise say the experts at the Pennsylvania Institute of Certified Public Accountants (PICPA).

The media has coined the phrase “Boomerang Generation” to refer to the current group of young adults (typically age 18 through 35) who’ve either returned home to live with their parents due to economic reasons after college or those who have not yet left. Parents who find themselves in this situation soon discover that living with their adult kids is much different than when they were younger.

Put a Plan in Place

Parents who find themselves caring for their adult children for longer than expected, with no exit plan in sight, could easily face financial ruin. One way parents can combat the dangers of this scenario is to prepare, periodically review, and adjust a financial plan, says the experts at PICPA.

  • Write It Down – It’s extremely important for parents to establish boundaries right away when adult children move back home. Some financial professionals recommend parents draft a contract that establishes quantitative rules (rent, utility costs, food costs) and qualitative rules (chores, guest policy, and job search efforts).
  • Establish a Budget – When a child returns home, parents often see money being spent on new cell phones or evenings going out with friends, rather than paying off student loans, credit card debt, and car payments. Parents should help the adult child establish a personal budget to set them on the right track toward independence more quickly.
  • Make Home a “No Freeloading Zone” – Adult children should be made to understand that when they move back home, it increases their parents’ cost of living. Parents should illustrate these costs –utilities, food, insurance – to help adult children appreciate the financial impact on their parents. Determine if income and expenses warrant the child’s contribution toward the household and to what extent.
  • Supplemental Support Schedule – Parents should set limits on how much they’re willing to supplement the cash needs of their adult children. Parents should make a supplemental disbursement schedule (monthly, weekly) so that adult children can manage their money wisely. Also, determine how long this disbursement should last and if it will be a loan or a gift.
  • Set Time Limits – Boomerang children shouldn’t have an open-ended invitation. Financial advisors can be instrumental in determining how long parents can “carry” an adult child at home without it jeopardizing their golden years.
  • Have an Exit Strategy – When should a parent expect their adult child to move out: immediately after finding a job or after a certain amount of money has been saved? When should an adult child be asked to move out regardless of employment or savings?

Keep Parents Committed to Their Own Financial Well-Being

Ever wonder why flight attendants instruct passengers to put on their oxygen mask first before helping others? Well, it is difficult to help others if you’re unconscious. The same is true financially. Parents should be cautious not to let their desire to love and nurture their children irreparably damage their own financial well-being. This is where working with a financial professional can help make sure that parents don’t get clobbered by the boomerang.

To find a CPA in Pennsylvania by location or area of expertise, ask friends and family for recommendations or use PICPA's CPA Locator.

Original publication date: Oct. 2, 2013

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.