According to a study conducted by Twentysomething Inc., nearly 85% of college grads returned to their parents’ homes last year. The class of 2011 represents a collection of growing problems in the U.S.: high unemployment rates, rising education costs, and student loan debt. The road to credit repair seems inevitable for Generation Y, but what about their parental counterparts? Helping your children when they need it is natural, but not at the expense of your own credit repair and financial security. If your newly-minted alumnus returns home, where do you draw the line?
• Assess the issues.
Over half of the 25-and-under workforce is currently unemployed. It’s no surprise that your son may need to reclaim his room after graduation. Take this step before stocking the fridge with their favorite foods, however. Talk to your kids about:
Why they are returning home.
Is it the job market or a simple fear of facing the real world? Practicing some tough love could be on the horizon.
You probably know the extent of Junior’s student loan debt, but is that the only weight in his bag? College kids are notorious targets for credit card companies. Find out if his collegiate fun gave way to frivolous charges. Ask how much money he owes and how he plans to pay for it.
• Set boundaries.
Yes, the job market is tough. Yes, Junior may be burnt out after four years of school. Be warned, however: you are not doing him any favors by allowing him to regress into teen behavior. Kids feel comfortable under their parents’ roof, comfort that can evolve to laziness without some rules. Before your kid starts unpacking his boxes, sit down with him and review the following information:
Household expenses —
From the mortgage to the water bill, lay out your budget and explain it line-by-line. Outline your own financial obligations and goals, including credit repair and debt management.
Retirement savings —
The time to scrimp on retirement has come and gone. Explain your retirement plans and the contributions you make to achieve your goals. Stress the importance of maintaining these contributions as you get older.
“Kid” expenses —
Adding another person to the house is sure to increase expenses. Estimate these costs and ask your child to contribute to the household budget. He may not find his dream job right away, but a temporary gig is within his grasp.
Claim applicable tax deductions —
Generally, it’s fairly well known that any child under the age of 19, or under the age of 24 if a full-time student, can be claimed as a dependent irrespective of the child’s employment status. Lesser known, though, is that an older adult child who has moved back home can be claimed as a dependent as long as that child’s annual income is less than that year’s personal exemption amount ($3,800 for 2012, for example). Remember that each family’s circumstances can vary, though, so consult a qualified tax accountant to make sure your claimed deductions are appropriate.
• Assert your expectations.
In addition to paying rent, keep an eye on the long-term plan and voice your expectations. Ask your kid to keep you updated on his job search and debt management efforts. Set an end-date where he will hopefully be capable of finding his own financial footing. Whatever their age, helping your child seek independence is part of being a good parent. Protect yourself by allowing them to help themselves.