This paper looks at the factors that are contrbuiing to the increase in the number of adult children that are returning home to live with their parents. Since the lastest economic downturn commenced in 2007 these numbers have risen steadily. The immediate and future financial and econmic consequences of this phenomonon are explored.
Adults Moving Home
Although the practice is not new, it is becoming a common trend in twenty-first century America for adults to return home after college or even later in life to live with their parents. This practice breaks with the tradition of young adults living independently when they reach 18 years of age. While returning home after college has occurred since the early twentieth century, the numbers of adult children moving home has significantly increased since 2007. This development is the result of many factors.
High housing prices, the rising cost of higher education, and the relative affluence of the older generation are among the reasons adult children move to their childhood home to live with their parents. Today almost four in ten adults age sixty or older give money to their adult children while only about 12% get financial help from their offspring. The annual cost of a four-year public education has more than doubled over the last twenty years, while housing prices over the same period have more than tripled (Palmer). This trend has provided more wealth to the baby boomer generation, those born between 1946 and 1964, while at the same time increasing the difficulty of the next generations to gain their independence.
According to a report issued by the U.S. Census Bureau the percentage of young adult men living in their parents' home rose from 14% in 2005 to 19% in 2011 and the percentage of young adult women living at home rose from 8% to 10% during the same period. Many point to the economic downturn over the past half decade as the chief impetus of this trend. Between 2008 and 2011 the household formation rate has fallen by more than half, with just 650,000 new households being formed annually during this period as compared to an annual rate 1.5 million between 1997 and 2007. A depressed job market is widely thought to be responsible for this phenomenon (Weston).
These so called "boomerang kids" who move home for financial stability are quickly becoming the new normal. One fourth of adults between the ages of 18 and 39 are currently living at home. Logically the fact that the U.S. population has been increasing steadily over the last 50 years would lead one to conclude that there are fewer adult parents in the country, so it should be no surprise that one-third of all parents have adult children living at home (Psaty). This means for many there is a new kind of burden facing future retirees, supporting their adult children well into their maximum earning years. This was a time when past generations were socking away the bulk of their retirement savings.
However, according to a recent study by Harris Interactive and National Endowmnent for Financial Education among the 40% of children who currently or recently lived at home with their adult parents 75% shared some of the fincial burden. Fifty-two percent helped their parents pay for groceries or food, 34% contributed to utility bills, and 29% helped with mortgage or rent payments ("Survey: Parents Financilly Supporting Their Adult Children").
This research may indicate that families are working together to keep finaces in the black and may signal a return to the long-term family unit. Additionally, this practice could lead to stronger family ties, better financial literacy due to more familial conversations about money and/or improved financial stability for generations to come thanks to increased family efforts to avoid debt.
Nonetheless, many finacial advisors agree that if helping your adult children is hurting your chances of retirement you should stop immeadiately. If a parent spends their whole life taking care of their children financially who will take care of them when they can no longer take care of themselves? When considering making loans of gifts parents should first protect themselves from financial distress. Many do not realize how much the help that they are providing cuts into their retirement savings. Thirty percent of parents with adult children living at home report the money given to them has negitively affected their own retirement savings (Palmer). Furthermore, giving money to adult children may foster more dependance which can breed tension.
As the economy recovers many expect this trend to reverse. As evidence last year nearly 950,000 new household formed according to the U.S. Census Bureau. This number was on track to top one million until an unexpected economic slowdown in the fourth quarter. Still, some economists forsee 1.2 million new househlds this year and 1.3 million annually in 2014 through 2016 (Weston).
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