Parents to Boomerang Kids: Your Allowance or My Retirement?

Here’s the picture: Your 21-year-old son graduated from State U. last spring without having found the perfect job. So he did the logical thing (from his perspective), and moved back home.

Congratulations. You are now the proud (or not-so-proud) parents of a “boomerang.”

You love your child. You’re caring parents. You want to help. But seven months later he’s still jobless. In addition to providing encouragement for his job search, you pay for his car insurance, gas, cell phone and food.  You envisioned spending your late 50s differently. Unlike some parents, you had grown to enjoy the calm and privacy of your empty nest. Now, the two of you are starting to feel a wee bit like you’re being taken advantage of. Resentment and frustration sometimes creep into your voice when you’re talking with your son. You hate what this arrangement is doing to your relationship with him- and each other.

Your son isn’t a happy camper, either. He feels as if he has to ask permission to, say, invite friends over. (Of course, you’re springing for the beer.) It isn’t his fault the economy is in the tank.  Geez, just look at the unemployment rate—and for some reason there don’t seem to be a lot of employers looking to a new grad with a bachelor’s in telecommunications. It’s a bummer, but it beats washing dishes, parking cars and sharing a one-bedroom apartment with three other guys like his former college roommate is doing.

Oh. And he has every intention of paying you back.

There’s no question that the recession and continued high unemployment rate have hit recent college grads hard. Research conducted last spring on behalf of the National Endowment for Financial Education (NEFE) found that 42% of U.S adults aged 18-39 who were not students were receiving or had received financial help from their parents.(1)

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Interestingly, a larger percentage of parents (59%) said they had provided or were currently providing financial assistance to adult children. In addition, they reported themselves as being more generous- in some cases, substantially more  than children reported. (The parents and children did not necessarily come from the same family.)

Financial Help Provided By Parents(1)

Granted, some young adults took significant steps to avoid or reduce the amount of help needed from their parents. Close to 30% reported they took money out of their own savings or retirement account, 1 out of 5 took on additional debt and 17% dropped insurance coverage.

But 30% said they didn’t have to make any sacrifice at all.

Katherine Dean, managing director of regional wealth planning at Wells Fargo, says parents aren’t doing their kids any favors by helping them out long term.

“Kids get too comfortable if you make things too easy.” She says it’s important for parents to lay down ground rules before the adult child shows up with suitcases and moving boxes. “People are hesitant to hit the pause button, sit the child down and set expectations up front.” Parents need to let their grads know that while you are happy to help out during this difficult period, you expect contributions to the household. “Even if it means you have to get a job at McDonald’s, you’re going to contribute to the family income. Doing some kind of work is good for the child’s morale, too.”

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Other contributions might be non-monetary, such as planning and preparing one or two dinners per week, helping with yard or housework, baby sitting a younger sibling, etc. “There’s a sense of entitlement with the younger generation today,” says Dean,“[they]have certain expectations. They feel they deserve certain things.”

Dean, who is personally experiencing a boomerang situation in her family, says parents can turn it into a valuable learning experience. “Kids aren’t educated around what things cost. Teach them about budgeting, what it costs to live the lifestyle you want.” She suggests having the child take a hard look at reducing expenses, and really question every purchase before making it: ‘Do I really need this iphone?’”

Above all, “Don’t eat into your retirement savings to support this child,” says Dean. According to research by Wells Fargo, 25% of the middle class think they will need to work until age 80.” On average, respondents estimate they’ll need a nest egg of $350,000(2), yet more than half have saved just $25,000. “When you factor in kids moving back home requiring support, it’s only going to make things worse,” she says.

All the more reason mom and dad need to know exactly where they stand in terms of their own retirement preparations. How much can they realistically give- and for how long- without jeopardizing their own future? For this, you need a written financial pla--a blueprint that shows you where you currently stand and lays out how to accumulate the resources you’ll need by the time you retire. It’s something that 69% of Americans do not have, according to Wells Fargo research.

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The bottom line is, yes, you want to be emotionally--and to some extent, financially--supportive of an adult child who is sincerely stymied in terms of finding employment in the current lousy economy. At the same time, it’s not healthy for either party if you make the conditions too cushy because that doesn’t create financially-responsible adults. “It’s a difficult conversation to have,” admits Dean, “Which is probably why people don’t. But if you don’t have it, what are the ramifications to you and to your child?”

Or, as I like to say, if you blow up your retirement savings today, are you prepared to move in with your kid when you’re 80? Is he?

1. “Survey: Parents Financially Supporting Their Adult Children,” Harris Interactive study on behalf of National Endowment for Financial Education conducted May 10-12, 2011.

2. An amount most financial planners would say is way too low.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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