By Nat Sillin
Multi-generational households are nothing new – before 1950, parents, kids, grandparents and extended family members living under the same roof was not only common, but also smart. Combined households sharing living expenses, childcare, eldercare and maintenance duties made life more affordable. Due to recent economic realities, multi-generational living has been on the rise for many families.
A 2014 Pew Research Center analysis showed that a record 57 million Americans – equal to a little over 18 percent of the U.S. population – lived in multi-generational family households in 2012, double the number in 1980. The major driver was young adults aged 25-34. According to Pew, nearly 24 percent of this group of older millennials lived in multi-generational households, up from nearly 19 percent in 2007 and 11 percent in 1980.
What’s making the kids move home? A staff report released in February by the Federal Reserve Bank of New York pointed to several factors. High levels of student debt – which roughly 40 percent of all young adults now carry, up from 26 percent in 2001 – is a major factor. Other experts point to a still-recovering job market which makes separate rental or owned real estate tough for young adults to afford. Other studies suggest that moving back home after college is a much more acceptable, even trendy thing to do than it might have been for the previous generation.
It’s possible that many “boomerang” families may remain so for some time to come. For homeowner parents who may also be juggling the “sandwich” responsibilities of caring for older relatives, paying attention to the financial and behavioral details of taking in family is critical. Here are some suggestions to consider:
Set your financial priorities first. Operating a home costs more when more people are using utilities, food and putting additional wear and tear on the property. Taking in family also shouldn’t derail a parent’s career goals or retirement planning, nor should it diminish other necessary financial objectives like maximizing savings or eliminating debt. That’s why dual- or single-parent households might begin with a complete financial assessment before welcoming kids or elders back home. A discussion with qualified financial and tax advisors might be worthwhile to determine how much expense you can take on. For arrangements that go beyond free lodging to direct cash support of family members, gift tax issues should be explored.
Think through house rules. Living with family doesn’t necessarily mean a strict landlord/tenant relationship, but adults living under the same roof should agree on whether money will be part of the agreement in addition to basic rules governing how all the adults will operate. Ask trusted advisors about whether charging monthly rent or in-kind services (chores, repair work, etc.) makes sense in your situation. If you decide to accept rent, know there are potential tax issues based on the structure, timeframe and expenses related to such an agreement. Legal paperwork may be required, but there also may be rental expenses you can deduct.
Establish timelines. In the real world, financial arrangements are rarely open-ended. Depending on the financial, tax and legal advice you receive as well as local tenant law and personal preferences, you may be signing an official lease for your family member’s stay with a specific timeline of months or years. Whatever the requirements, make sure you have an effective framework for you and the other family member that set financial and behavioral rules you want met.
Start with a family meeting. Before adult children or extended family members move in, get the household together for a discussion. Start by letting your child or relative talk through why they want to move in, whether they have financial goals tied to the living arrangement and how long they plan to stay. Share the structure you envision including the payment details you would consider. No matter how agreement is struck, it should begin with a full discussion of needs, preferences, financial terms, and most of all, ways to make the arrangement successful and smooth. And once everyone’s settled, keep communication going – boomerang families have unique, ongoing financial issues that require continued discussion.
Prepare to track expenses. Once agreed, retrofit your household budget to keep track of higher food, utility and related expenses for cost-sharing and potential tax purposes. Having people you love living with you will hopefully have many rewards that go beyond simple dollars, but always know what the arrangement is costing you.
Consider the end game. With your child or family member under your roof, you have an opportunity to help them in a variety of ways beyond giving them a place to sleep. If they’re facing serious financial challenges, you may consider helping them re-plan their finances or giving them direct help to restart their lives. Many parents quietly save or invest their child’s “rent” with a plan to present the nest egg as a gift when they meet financial goals and are ready to move out. Such generous acts require smart tax and financial planning, so consult experts about these possibilities at the beginning.
Bottom line: With proper planning and honest discussion, boomerang families can create living arrangements that are financially successful and bring relatives even closer.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Nathaniel Sillin is the Head of Global Financial Literacy at Visa Inc. and runs the company’s financial literacy program in the United States, which includes the award-winning Practical Money Skills for Life and What’s My Score programs. As part of his work at Visa, Sillin is a frequent public speaker and an active voice in the financial literacy community.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.
Money Management for the “Boomerang” Household
By Nat Sillin