Should I Charge My Adult Children Rent If they Move Back Home?

By
Mike Loo, MBA
August 30, 2018
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Whether we attribute it to a decline in marriage rates, poor job prospects, student loan debt, technological improvements, or generational shifts, times have certainly changed for young adults. One major topic which my clients bring up centers around their adult children moving back home. While this was not a common conversation ten years ago, I come across this topic more often nowadays. I’ve heard statistics such as “a third of young people, or 24 million of those aged 18 to 34, lived under their parents’ roof in 2015”, and look at it as my job as an advisor to provide advice on how to best navigate through this new landscape.(1)

Within this topic, a common question that I try to help my clients answer is this: Should I charge my adult children rent if they move back home? What I’ve found is that every situation is different, so what may work for one family, may not work for another. However, in this article, I hope to provide a framework to consider when trying to answer the question.

Setting Expectations

Depending on your own experiences and values as parents, as well as the specific circumstance of your adult child, you may insist that they live at home rent-free. For example, if your adult child is being responsible by saving a good share of his/her paycheck for a house down payment and you want to reward that responsible behavior by letting him/her live at home rent-free, there’s absolutely nothing wrong with that. For other parents, such an assistance for an adult child does not make sense, and no matter what the circumstances, would believe it only right to charge for rent if living at home.

No matter where you fall on this spectrum, it is important to set expectations with your adult child. For instance, if you decide that it is out of your comfort zone to charge your child rent for living at home, then what other mechanisms can you put into place to make sure he/she does not get too comfortable? In my experience, I’ve seen parents create timelines and goals, as well as make it crystal clear that the adult child must still pitch in, in other ways such as chores or errands. While it may be a tough conversation initially, imagine the alternative. What if your child gets too comfortable living at home and would rather stay at your “hotel” rather than spread their wings in the real world!

Whether rent is being paid or not, the adult child will have a particular reason as to why they want to or need to live back at home. If they are simply being lazy and are not making an effort towards adulthood, it is crucially important to provide clear expectations. As parents, you want to always help and support, but you never want to enable. Therefore, in this example of being lazy, a parent could set expectations of applying for X number of jobs per week, or something similar.

How Much To Charge For Rent

If you do decide that it makes sense to charge your adult child rent, how much should you charge? In my experience, parents usually charge well below market rates. As parents, you want to help your child out, but you also want to build up their personal finance awareness. How much you charge will also be highly correlated to what your daughter or son can afford, and could change over their time living with you. By having an open conversation and being clear about why you will be charging them, it should not be hard to fall on a number that makes sense for your family.

Alternatives

There are also other ways in which your adult child could pitch in that could be alternatives to paying rent. Such alternatives could be household chores or errands, cooking meals, or even helping parents with their own work. In addition, it could make more sense to have your adult child pay for other household expenses (instead of rent), such as internet, tv, or groceries.

Another alternative could be to make their stay at your home contingent on them depositing money into their own retirement account. This way, you are teaching them how to save and plan for the future.

Finally, if you want to help them grow personally, you can make their stay at your home contingent on community service or volunteering. This is a win-win as well!

Budgeting

This experience can also be thought of as a great teaching moment for your child. Specifically, parents in this situation are in a unique position to extol the virtues of budgeting and personal finance when their child needs it most. If the adult child in your household has to pay you rent and decide how to allocate their small-to-no income, they will quickly learn how to budget. As a parent, you may decide to get creative and instead of using the rent money for expenses, stash it (and maybe even match it) into a savings account for your child. They will be happily surprised with a small nest egg to leave home with!

Other Considerations

Other considerations that I make sure clients consider is their own budget and retirement goals. If your adult child is going to come back home and live there, you’ll want to make sure that adding another adult to the household does not negatively affect your own goals. Because you’d anticipate that household expenses will go up, you must make sure you budget for them, based on your expectations and timeline with your adult child. Again, by having an open conversation with your adult child, I am confident that a reasonable game plan can be implemented with success.

Having this conversation is not always an easy one, but I hope that the considerations above help provide better ways to think about it. If you’d like to discuss your situation further, call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com.

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By Trilogy Financial
May 22, 2023

As the cost of living rises, households worldwide feel the squeeze. Inflation impacts everything from groceries to housing to healthcare, and families struggle to make ends meet as they stretch their budgets to the limit.

Recent statistics show the inflation rate in the United States has risen to its highest level in over four decades. The Consumer Price Index (CPI) has increased by 7% over the past year alone. Inflation is a persistent increase in the prices of goods and services over time, leading to a decline in purchasing power of money. It affects the economy in many ways, including households, as it erodes their buying power, making it difficult to afford basic necessities.

A couple seeking help from a financial advisor.
A mature diverse couple shakes hands with a financial advisor.

How Is Inflation Impacting Households Today?

Inflation is affecting families significantly, with prices of goods and services rising rapidly. One area where inflation has a noticeable impact is the cost of groceries. According to the U.S. Department of Agriculture, food prices have increased by 6% in the past year.

Inflation is also impacting the cost of housing. According to the National Association of Home Builders, lumber has increased by more than 167% since April 2020, making building, renting or renovating homes much more expensive.

Other areas where inflation impacts households include transportation, healthcare and energy costs. With gas prices rising, transportation costs are increasing making it more expensive for families to commute to work or travel.

Healthcare costs are also rising, with medical services and prescription drugs becoming more expensive daily. Additionally, the cost of energy, including electricity and natural gas, is increasing impacting household budgets.

 

How We Got Here and Why?

The United States has experienced an increase in inflation in recent years, fueled by a combination of factors, including:

Supply  chain disruptions: The COVID-19 pandemic caused disruptions in supply chains, leading to shortages of goods and raw materials and higher consumer prices.

Government stimulus: The US government has implemented several rounds of stimulus packages in response to the pandemic, flooding the economy with cash and contributing to inflation.

Labor shortages: The pandemic also caused labor shortages in many industries, which has led to increased wages for workers and higher prices for consumers.

Rising energy costs: The cost of energy has increased, with higher prices for gasoline and other commodities, which has increased the cost of goods and services.

Monetary policy: The Federal Reserve has kept interest rates low to stimulate economic growth, contributing to inflation by making it cheaper for consumers and businesses to borrow money.

These factors have all contributed to the current state of inflation in the US. However, inflation is complex and multifaceted; many other factors are also at play.

7 Tips to Help Navigate Inflation

Inflation can be a challenging economic environment for households to navigate. Here are tips from our team of advisors at Trilogy Financial that can help you manage inflationary pressures.

1. Calculate Your Inflation Rate

This measure provides a more accurate reflection of the inflation you are experiencing compared to the general inflation rate reported in the media.

A financial advisor can help calculate your personal inflation rate by analyzing your spending habits and identifying the goods and services that make up your personal consumption basket. This process can involve reviewing bank and credit card statements, examining household bills, and discussing significant lifestyle or spending habits changes to help you track the prices of these items over time and calculate your inflation rate.

2. Create a Cash Management Strategy

A cash management strategy will allow you to preserve your purchasing power and financial stability. A financial advisor can help you create a strategy that aligns with your financial goals and risk tolerance by:

  • Assessing your current financial situation,
  • Identifying your short-term and long-term cash needs, and
  • Recommending appropriate investments that balance liquidity, yield, and risk.

The strategy can involve diversifying cash holdings across different asset classes, using inflation-indexed bonds or money market funds, and considering alternative investments that offer potential inflation protection.

3. Discuss When and How to Use TIPS to Protect Against Inflation

Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bond indexed to inflation. As inflation rises, the principal and interest payments of TIPS adjust accordingly, providing investors with a hedge against inflation. A financial advisor may recommend TIPS if you want to protect your portfolio against inflationary pressures or maintain your purchasing power over the long term. It could involve assessing your risk tolerance and investment objectives and recommending an appropriate allocation to TIPS within a diversified portfolio.

4. Discuss Alternative ‘Inflation-Hedging' Assets

In addition to TIPS, assets such as commodities, real estate and stocks of companies with pricing power can provide inflation protection. A financial advisor can help you choose the right assets for your portfolio by assessing your investment objectives, risk tolerance and time horizon. As a result, they can recommend an appropriate allocation to inflation-hedging assets that balance return and risk, like commodity funds, real estate investment trusts (REITs) or sector ETFs offering exposure to companies with pricing power.

5. Strategize for How to Avoid ‘Tax Bracket Creep' as Income Rises

Tax bracket creep pushes an individual's income into a higher tax bracket, resulting in a higher tax bill. This move can erode the purchasing power of your income and reduce your savings.

A financial advisor can help you strategize on how to avoid tax bracket creep by considering tax-efficient investment vehicles, such as Roth IRAs, tax-loss harvesting and charitable donations.

6. Review Homeowners and Other Insurance Solutions to Avoid Under Coverage

As the value of assets, goods and services increase due to inflation, the cost of replacing them also rises. A financial advisor can help you review your insurance coverage and ensure they have inflation protection from risks.

Advisors can also educate you on the different types of insurance available and their benefits, such as umbrella insurance, which can provide additional liability coverage in case of a significant lawsuit or accident.

7. Reassess Long-Term Inflation Assumptions for Retirement Projections

Inflation can significantly impact retirement savings and planning because it reduces the purchasing power of money over time. Individuals will need to save more to maintain their living standards in retirement.

A financial advisor can help you reassess your long-term inflation assumptions for retirement projections by analyzing your current savings and investment strategies, projecting future inflation rates, and identifying potential gaps in your retirement plans.

From Us to You: Control Your Financial Future

As inflation continues to affect households, you should take control of your financial situation and work with a financial advisor to develop a plan aligning with your goals, risk tolerance and personal situation.

Trilogy Financial is a financial advisory firm dedicated to helping clients navigate the complex world of personal finance. We offer comprehensive services, including financial planning, investment management, and retirement planning.

If you are concerned about the impact of inflation on your finances, contact us today to schedule a consultation with one of our experienced advisors. We are here to help you take control of your financial situation and navigate through the challenges of inflation.

Female financial advisor meeting with clients.
Female financial advisor meeting and discussing expert inflation protection tips with clients.

 

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual 2. Investing involves risk, including possible loss of principal.

By Trilogy Financial
August 22, 2018

Recently, I followed up with a client after the client had been away on a family vacation for two weeks. Prior to that trip, the chaos of summer, work travel, and meetings had prevented the client from following up with me on a minor but impactful recommendation I had encouraged the client to consider in our last conversation. Before I had the opportunity to even say, “Hello,” the client apologized and communicated that I was owed a phone call. Yes, I had encouraged a decision knowing the impact would further strengthen the client’s financial situation, but in my diligence, I didn’t expect a phone call. The definition of diligence: careful and persistent work or effort. I love the simplicity of this definition and the use of the words persistent and effort. From knowing the client, I know the client is incredibly diligent in her own work and personal life. You see, when my client picked up this phone call, and the diligence of my follow up had just replaced the client’s call, eased the burden of the client having to call me back (amidst her intense work schedule), and ultimately resulted in the client making a best decision to improve the efficiency and effectiveness of her plan after re-clarifying the client’s priorities and current time frames.

An ongoing and sound financial plan requires an immense amount of diligence. If you are not ready to double down on this level of diligence on your own, why not hire a Decision Coach and Certified Financial PlannerTM professional to sprinkle the entirety of your plan with some diligence? Have you rebalanced your 401(k) lately? Have you increased your contribution percentage after your last raise? Did you update your life insurance planning after you moved into a new home after your second child was born? Are you planning on saving for that dream trip to Europe, or is that just going to magically happen in the next five years? What are the trading fees on your brokerage account? You have given thought to each of these questions. You have even discussed the answers with your spouse or close friends. Yet, you are busy and these action items are on the top of your priority list on a Tuesday. All of these questions require thoughtful planning with ongoing diligence, communication, and action. As soon as you settle into a plan with the right cash flow, life happens and you will need to adjust the game plan. My client didn’t forget to call me back. My client wanted me to call me back. Yet, my client didn’t call me back and didn’t make up her mind, until I called. Was I upset that I had to follow up several times? Was I frustrated my client seemed non-responsive? Of course not! It’s my career and joy as a Decision Coach. It’s part of my role as your financial planner to be diligent, to hold you accountable, to help you make qualitatively better decisions over time. Do I expect this to take a few follow up calls and three incredibly productive and ongoing quarterly progress checks between annual reviews? Of course! I love crafting a game plan for you. I love when you approach a financial decision and prior to making a decision, you reach out to me. I want your plan to be dialed in, so ultimately, you are living the life you want now, saving for the life you want in the future, as I provide the guard rails of diligence all along the way. A lot happens in a year and all of those little decisions have a significant impact over a long arch of time. Why I am so diligent with your financial plan? So, you don’t always have to be…don’t apologize, let’s just make the next best decision together and I’ll handle the follow up so we can one day celebrate together, not just because you are retiring, but because of the life you lived to get there.

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