Growing student debt, climbing rent, rising inflation, stagnant wages…these and other financial strains may be making it harder for younger generations to get by and make it on their own.
Perhaps that’s why record numbers of young adults are moving in with their parents. The number of U.S. adults ages 25 to 34 who live in a multigenerational family household has nearly tripled in the last 50 years. Only 9% of people in that age group lived “at home” in 1971 compared to 25% in 2021, according to Pew Research Center.1
Does such a living arrangement help or hinder households? Should your clients be concerned about whether multigenerational living might negatively impact their retirement?
Financial contributions of younger generations
Notably, the growth in numbers of younger generations moving back home tripled among those without a college degree compared with twice as many young adults with at least a bachelor’s degree.1
Those without a college degree earn substantially less income than their college graduate peers. Fewer earnings leads to fewer contributions to cover household expenses. The research bears this out. The typical person living in a multigenerational household ages 25 to 34 contributed only slightly more than one-fifth (22%) of the household’s total income in 2021.1
When consulting with clients who’ve revealed such living arrangements, it may warrant a conversation about whether the son’s or daughter’s financial contributions are covering the added expenses of having them live at home. If the answer is a resounding no, a delicate conversation about the impact on your client’s personal goals may be in order. Helping to pay an adult child’s living expenses could diminish how much your clients contribute to their own retirement plan. You may need to revisit their time horizon or strategize ways to bridge the gap.
Adult children living at home may not be a bad thing
All that said, there are always exceptions to the rule. Negative stereotypes abound about adult children living in their parents’ basements and playing video games all day. Stereotypes often don’t ring true, however. Depending on the situation, moving back home may not always be a bad thing.
Putting societal “norms” and expectations aside, adding another income earner to a household could be a positive move for both the parents and the adult child. After all, inflation is hitting the parents, too, and they may appreciate having the extra financial support that a son or daughter may bring.
An adult child’s financial contributions to household expenses will arguably be less than paying for their own apartment or home, and they could stash away some of that extra money into an employer-sponsored 401(k) or savings.
In addition to financial help, the parents could benefit from having an extra set of hands around for household chores and other assistance. Plus, if they’re empty nesters, they may simply appreciate the relational dynamics that come with such a living arrangement.
Could it be that, for some investors, having their adult children as part of their household is a good thing? Assuming there’s no glaring dysfunction and that the adult child pays their fair share to cover expenses, it could be a win-win.
Make expectations known
Multigenerational households are sometimes born out of necessity, but that doesn’t mean that such situations need to place a burden on either party. When advising clients, whether the parents or their adult children, it’s important to encourage them to set clear expectations and get answers to the following questions:
- How much will the adult child contribute each month toward rent, insurance and utilities?
- Which household duties will they be responsible for?
- Will they buy and cook their own meals?
- Is there an expected timeframe for how long they will stay?
- What are the ground rules for guests, quiet hours, etc.?
A decision about having a multigenerational household is often as much emotional as it is practical, but it doesn’t mean such living arrangements need to have a negative impact on a client’s retirement.
Emotions have the potential to cloud the decision-making process. We’ve developed a library of helpful Behavioral Finance Advice (BFATM) resources that you can use to guide them through different scenarios and help them make more rational and reasoned decisions. Access these resources by clicking the link below.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.