Turning Tables: New Rules for the New Economy.
There is an ongoing debate about whether so-called “boomerang kids” (adult children who move back home after graduation) should pay rent to their parents. Some people say that the boomerangs should definitely pay rent (either at market rate or at a reduced rate) to help defray costs for the parents and/or to help the adult children become responsible adults who can earn and manage their own money. Others say that parents should not charge rent to their own children, because “family is family.” Some parents charge a low rate and then return the money when their son/daughter moves out (surprise!) to help with a down payment on a home, a deposit on an apartment, or other expenses (like reducing student debt). Some families ask their children to contribute in other ways besides paying rent, such as buying food for the family, paying for utilities, or helping with maintenance and renovations (yard work, snow removal, cleaning, painting, etc.). This family-rent issue can be a hot-button topic with the potential for hard feelings, conflict, and strained relationships.
There is not a one-size-fits-all answer that works for every family, due to different financial situations, such as:
- Does the boomerang child also have massive student debt?
- Does the child have a job or good prospects for a job?
- What is the parents’ financial situation?
These and other factors need to be carefully weighed and discussed by everyone involved before a family can come to a fair and workable solution.
Boomerangs can be thrown in two directions.
At the risk of jumping deeper into this ring-of-fire issue (à la Johnny Cash), we want to add one more factor to the mix. If a parent charges rent to an adult child who returns home after graduation due to financial need, does it follow that an adult child should charge rent to an aging parent who comes to live with the child down the road if the parent has insufficient (or non-existent) retirement funds to be self-supporting? What if the parent has dementia or other health issues? The cost of assisted living, memory care, or private home health aides (whether round-the-clock or part-time) can be astronomical and beyond the financial resources of many people. (It is not uncommon for millennials and others to sidetrack their careers and earning potential to take care of parents who cannot afford to pay for the care they need.)
According to a 2016 fact sheet on caregiver statistics by the Family Caregiver Alliance, National Center on Caregiving, there were roughly 43.5 million caregivers providing care without pay in the U.S. during the previous 12 months, and approximately 42% provided care for a mother (31%) or father (11%). Should these adult children, some of whom might have paid rent to their parents when the “shoe was on the other foot,” now be charging rent to mom or dad? (That’s a rhetorical question.)
What if the shared living arrangement is based solely on economic necessity unrelated to home-care needs (i.e., mom and dad are retired and healthy, but their nest egg is depleted):
Should the reason for the parents’ economic situation be a factor?
- Loss of a job with no good prospects for re-employment due to age?
- A lifetime of overspending and unnecessary debt?
- Poor financial planning?
Should the financial situation of the adult child be a factor?
- Living paycheck-to-paycheck and barely making ends meet?
- Earning a good salary and easily able to take on additional expenses?
Would renovations need to be made to the adult child’s home to accommodate the parents?
- Building an extension to add an “in-law apartment?”
- Converting other space (basement, attic, study, etc.) to a bedroom?
- If these changes are costly, who would pay for the renovations?
Should former boomerang children who once paid rent to their parents now charge rent to mom or dad? (Again, hopefully, a rhetorical question.)
According to a 2017 PwC Survey (at p. 29), nearly half (46%) of baby boomers have saved less than $100,000 for retirement. (30% saved less than $50,000, and 16% saved between $50,000 and $100,000.) A retirement nest egg of less than $100,000, even when supplemented by social security, will not allow many people to be financially independent throughout their retirement years (especially with greater longevity, the rising cost of living, and increasing healthcare costs). Add to that a tight job market—especially for people in their senior years—and you can see why so many families have reverted to multi-generational living as the solution to these types of financial and caregiving issues.
People in the so-called “sandwich generation” (caring for their own children as well as their aging parents) can feel especially stretched. These dual responsibilities are not just an issue for 40- and 50-somethings. There is a kind of “generational creep” taking place: what was affecting Gen X and older is now moving down into the millennial ranks (as millennials start having children, and life expectancies for their parents increases). Families should have open and frank discussions to make plans for different scenarios before any possible changes might need to be made.
Shared living arrangements within families (whether with adult children returning home upon graduation or aging parents moving in with their adult children) can have many benefits across the generations. At the same time, these arrangements can bring new stress points to the family dynamic, both financially and otherwise. (Do you remember high school? DO YOU? You will never not be their baby—and be subject to their rules—even when you’re 30+.) Eliminating financial stress should be one of the many goals for families planning to implement a shared household arrangement. Kinder and gentler financial ground rules (as in not charging rent) for boomerang kids moving back home after graduation might help ease some of the possible financial issues or concerns for those same people if and when the tables are someday turned.
If you’re a “rising” boomerang (recent grad on the cusp of moving back home), think about bringing up these issues with the ‘rents (pun intended). Talk to your “parental(s)” about other ways in which you might be able to help out when you are financially on your feet. If you’re a parent who is about to welcome your (potentially ungrateful) offspring back into his or her childhood bedroom after graduation, consider the flip side of the coin that might be tossed in your direction in the future. You can always teach responsible personal-finance habits to your returning brood in other ways besides charging rent. (For starters, tell them to check out Otterwize and other personal-finance sites geared to people just getting their life started.) Given that children also learn by example, then hopefully your good financial habits (good enough to be able to support your boomerangs) will rub off on them while they’re sleeping in their childhood beds.
N.B.: The decision to charge a family member rent at a fair rental price vs. at less than a fair rental price vs. not charging rent at all can raise certain tax issues relating to the reporting of rental income, deduction of rental expenses for the property, classification as personal use or rental use, and possible gift-tax issues. Consult with your tax professional before deciding how to structure any family living arrangement. See also IRS Publication 527.