It’s estimated that roughly 14% of adults between the ages of 24-34 and 51% of adults between the ages of 18-23 still live at home with their parents according to a December 2013 Gallup poll. The numbers have been rising over the years as housing has become more expensive and jobs less plentiful. Add on the explosive student loan debt debacle and it’s easy to see why adult children are deciding to give up their social lives to save some money.
Living at home with your parents isn’t so bad at all. There’s certainly nothing wrong with it. Who wouldn’t want free rent, free food, free laundry, free cable, free internet, and maybe even a free outdoor hot tub great for partying with friends? If you’re like all of my neighbors in San Francisco, your parents will be nice enough to buy you a house once they get sick of running into you coming out of the bathroom!
Two Paths, Two Different Financial Outcomes
A Techie And His Wife
One 30-year-old male I know named Steve-o, set out to be an independent man after graduating from UC Berkeley in 2007. He told me years ago, “Sam, there’s no way in hell I would ever go back home to live with my parents after four years of freedom in college. It would feel like I was going backwards, you know? I want to live for today!”
However, when I spoke to him the other week, his tune had changed. Steve-o now laments how all he can afford is a less-than-desirable $2,800 one bedroom in a borderline area of San Francisco with his underemployed bride. He’s a techie and she works in non-profit, which pays the pits.
Combined, they make a very respectable $120,000 a year before taxes. After he maxes out his 401k and pays taxes, they are left with only ~$70,000 a year, or $5,833 a month to pay for rent and everything else.
Even if they ate no food, never turned on the heater, gave up all material items, and skipped all vacations, they would still have to save for seven years to come up with a 20% down payment on a median priced home in San Francisco of roughly $1 million. Who knows what prices will be seven years from now? Based on the long-term trend, a safe bet is prices will be higher, which is why the best time to buy property is when you can afford it. A 3% increase in $1 million dollars is $30,000. If you make $100,000 after taxes, you need to earn 30% more that year just to stay even!
Steve-o and his wife will never be able to afford a median single family home in San Francisco unless one of them gets a big pay raise or financial windfall. They will likely have to move to Oakland in order to buy a more affordable $600,000 – $700,000 house.
A Marketer And Her Husband
Now take Jenn, a 30-year-old female who also graduated from UC Berkeley. But unlike Steve-o, not only did Jenn live at home her final two years of college to save her parents money, she lived at home for eight years after college as well. Although it takes her 45 minutes each way to go from the East Bay to downtown San Francisco, she’s been able to save $30,000 a year after-tax by not having to pay for rent, utilities, and frequent meals. Furthermore, Jenn also has over $120,000 in her 401k.
Armed with roughly $200,000 in savings, Jenn and her husband plan to buy a picturesque 1,800 square foot, 3 bedroom, 2 bathroom home in San Francisco for $1.35 million. Their combined after-tax income is roughly $100,000 a year, so they should have no problem affording a $4,000 a month mortgage payment after putting down $350,000.
When I spoke to Jenn about living at home for all those years, she told me it felt normal. “Sam, in my culture, a daughter lives at home and takes care of her parents before she gets married. Yes, it was a little difficult to get together with my now husband, but we went on vacation together and still had a lot of fun. My mom also loved having me around because she doesn’t work. Our parents are only on this Earth for so long. We should treasure every moment we have with them.”
Many of Steve-o and Jenn’s friends have strong incomes thanks to the robust Bay Area economy. $80,000 – $160,000 a year jobs in tech, internet, finance, and startup land are literally a dime a dozen for anybody with a college degree. What many of Steve-o and Jenn’s friends don’t have is the down payment to get started.
When To Give Your Adult Kids The Boot
So yes, there can be great financial benefits to living with your parents. But when will your parents decide you’ve overstayed your welcome? Besides the financial implications for living at home, there are also career, family, and motivational implications if adult children live at home with their parents too long. Let’s discuss five practical points before deciding when the adult kids have to go.
1) When your child isn’t getting anywhere at work. When you’ve got everything handed to you, why bother trying hard anymore? It’s difficult enough to get in early before everyone else, stay after everyone else leaves, network with senior colleagues, and be the best producer possible. But if you know deep down that you don’t have to do jack sh–, and you’ll still be taken care of, it’s easy to lose motivation to be an independent human being.
After two years of working on Wall Street in NYC, I was burned out. I was *this* close to giving up my career to move back home to Hawaii with my parents who had recently retired. The plan was to either work at a car dealership, or work as a financial advisor. I didn’t care because I just wanted to kick back. Luckily, I moved out to San Francisco and worked for the next 11 years. But now that I think about it more, it would have been nice to really hang out with my parents in their late 50s and early 60s.
2) When your child’s savings account is stuck in neutral. If Big Bobby was going to slum it with four roommates for $1,000 a month in the Mission District, then Big Bobby better show at least a $1,000 increase in monthly savings. Big Bobby better also be maxing out his IRA or 401k and talking to you about his financial future. It’s a good idea to have regular financial sit-downs with your adult child to see if they are truly taking advantage of the financial benefit of living at home. If their bank account is still roughly the same after six months, and they have a job, then you’ve got to be stern and take their ice cream away. Your child is simply taking advantage of you.
3) When your child hasn’t offered to do any chores around the house. If your adult child still is acting like a dependent adolescent child, then it’s important to slap them upside the head for their ungrateful nature. Remind them that the majority of adults their age are living on their own, paying their own way through life. Give them a three-month timeline to shape up and contribute around the house before you force them out. Scare them silly by printing out the latest rental listings in order for them to see how much they would have to spend for so little.
4) When you start noticing his or her friends come over more frequently. A motivated adult should be out there networking and hustling to try and break free from the nest. If you find his or her friends constantly coming over and smoking a bong all day and who knows what else, there needs to be an intervention. When you’re unmotivated and hanging around with unmotivated friends, it becomes impossible to launch. There should be an opposite mindset where your child should protect your house from guests at all costs because s/he wants to impose the least amount of burden possible.
5) When they’ve hit 32 years old. Love is tough, but if your child is 32 years old and still living at home, it’s time to go. Fourteen years after becoming an adult, and 10 years after the average person graduates from college is more than enough time to find out what they want to do with their life. Ten to fourteen years is also enough time to save a sufficient amount of money to live independently. Allowing adult children to stay beyond age 32 does them no favors. Heck, if someone maxes out their 401k for 10 years they should have around $200,000 right there.
Your Kids Will Forgive You
Baby turtles have to break through a hard shell, climb through mounds of sand, and then waddle into the ferocious sea without knowing how to swim. Many of them die en route, but for those that live, they become majestic creatures that may live for over 100 years.
Even if you kick your adult children out of the house, know that they are just a phone call away. They may never forgive you for no longer washing their Spiderman undies, but deep down inside, you know it’s for their own good. One day, they’ll call you out of the blue and thank you for your all your support! One day, they might even return the favor and take care of you when you no longer can.
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