Avoid Money Mishaps When Children Move Back Into the Nest

It’s graduation time, and many college graduates are returning to live at home for the first time in several years.

Once upon a time, many of these graduates quickly moved on to their own digs, but today that trend is changing. Because of an uncertain economy, many young adults have decided to spend a few years living with Mom and Dad until they have a stronger financial foundation. Others are seeking a way to minimize living expenses while they pay off hefty student loans, attend graduate school or save for a down payment on a home.

The prospect of living with an adult child may fill parents with delight or dread. In either case, the California Society of CPAs (www.calcpa.org) advises that it’s important to be aware of the financial challenges that parents will face in this situation. Families that address these issues beforehand have a better chance of preserving harmony.

TALK IT OVER

Families may have a lot of unspoken questions about how the new living arrangements will work, so it’s best to discuss everyone’s expectations in advance. For example, will the child be expected to pay rent? How much will he or she chip in for groceries and other expenses? If your child’s initial income is very low, you could consider charging them a token percentage of that income or asking them to take on certain household responsibilities, such as shopping or yard work. That’s a realistic way for your child to make a contribution despite their limited funds.

You’ll probably have other issues to consider beyond the economic ones. What chores will the child be responsible for? Can the child stay indefinitely or is there a time limit to the arrangement? Parents should discuss these and other questions with their children before they move in. You might even consider writing up an informal agreement that covers all of these details so there are no misunderstandings later.

INSURANCE ISSUES

Remember to consider both health and auto insurance issues for your child when he or she moves in. For example, your child will likely be too old to be covered under your own family health insurance plan. If he or she does not receive health insurance through an employer, it’s important to find the best plan for him or her -- and decide who will pay the premiums. In addition, if your adult child will be driving your family car, your car insurance payments will probably go up. Find out what the increase will be and decide how that cost will be paid.

TARGET YOUR SUPPORT WISELY

Beyond providing a place to live, should parents offer their adult children financial support during this transition time in their lives? If you are able to help your child financially, the best idea is to agree to pay for items that represent an investment in their future. That means that helping them buy books for graduate school is a good investment, but paying for an expensive new car may not be. Subsidizing an apartment in a safe neighborhood is a good idea, but financing a Caribbean vacation is not. Parents want to help their children as much as possible, but the most valuable assistance will enable them to stand on their own feet financially.

CONSULT YOUR CPA

It’s certainly possible to live harmoniously with your adult children, but you may have questions about managing the financial aspects. Your local CPA can help you understand and address these and other financial concerns facing your family.

To listen to podcasts with more financial tips, go to http://www.calcpa.org/Content/community/financialempowerment.aspx.