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Financial Dangers Parents Face When Adult Children Live at Home

The American Dream is the ideal where parents work hard so they can own a home, send their kids to college and watch them grow up into happy and fiscally responsible adults, possibly with families of their own.

Financial instability in the work force, mounting student debt and rising mortgage costs make that dream more of a fantasy, and an increased number of parents are letting their adult children move back home.

More than 22 million young adults between the ages of 25 and 34 still live at home with mom and dad, according to the U.S. Census Bureau. And many of them live with no rent, no power bill and no cable bill. Some are even still on their parents’ cell phone plan.

This staying-in-the nest relationship seems like a win-win on the surface. Recent college grads need a break to get on their feet after school, and parents are often happy to provide it.

While it’s easy to attribute this dynamic to lazy and unmotivated adult children, these so-called Millenials didn’t create our high unemployment rates and increasing housing expenses.

Regardless, potential problems lurk beneath such parental kindness.

A 2011 study by the National Endowment for Financial Education (NEFE) shows that 43 percent of parents “providing financial support say they are doing so because they are legitimately concerned with their child’s financial well-being.” A little more than one-third of parents said they struggled in the past and don’t want their own children to face the same hardships.

Creating a False Sense of Reality

Once a child is out of college, they are expected to find a job and fund their own post-education expenses like paying back student loans and other daily financial responsibilities.

Of course, circumstances vary. If your children are living at home for a brief period of time before moving out and starting a job, that’s fine. On the other hand, if they are living at home because they haven’t sent out a single resume and want to continue sponging off mom and dad, then you’ve got a problem.

One of the ways to break from this false sense of reality is to make them contribute in non-financial ways like cleaning, taking care of their younger siblings or cooking. If they have a job, they should be able to contribute some portion of their earnings to your utility bills or gas for the family car. It’s better than paying rent.

If they are unemployed, push them to find a part-time job and devote some of that pay to the monthly expenses at home like groceries.

Stay-at-Home Adult Children Push You Further into Debt

Researchers at NEFE said parents are funding all sorts of things for their adult children living at home.

The NEFE survey also showed that 26 percent of parents who allow their adult children to live at home took on additional debt, 13 percent put off buying a home or taking a vacation and 7 percent delayed retirement. Consider those numbers when you lend your adult child money to further their stay-at-home lifestyle.

If you would like to be retire securely and not worry about your children’s financial stability, then enforce rules and teach them how to make a budget.

Perhaps try the envelope system, where your child places money in separate envelopes for different things each month like food costs, insurance and phone payments, entertainment and as many other responsibilities that seem suitable.

When the money to place in those envelopes runs out, that’s it for the month. It’s an easy way to teach responsibility first-hand. They also won’t like seeing those empty envelopes just a week after the start of the month.

Lead Your Adult Child by Example

It may be a bitter pill to swallow, but sometimes what’s best for your children now isn’t setting the best example for them to follow in the future.

If you don’t consider yourself an expert when it comes to handling finances, then consult with a family member or professional who can give you more information. Take what you learn and explain it to your children.

Help your adult child strive for the American Dream and not burden yours by teaching them the basics: Budgets, paying bills on time, finding a full-time job and saving money.

They’ll thank you in the future.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

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