August 25, 2016
More adult children are living with family than at any time in the past 60 years. Whether your twenty-something bundle of joy is back home (or never left!) because you’re a better roommate with better digs, or because they have yet to find a career job, you still need to lay down some financial expectations:
• They Are To Contribute to Household Expenses. There is to be no freeloading. Yes, they are your kid. But they are also an adult. And adults need to carry their weight. Or at least some of their weight. I recognize you may not need “the help,” but having a child contribute to household cash flow each month is teaching a ton of life lessons. Make this a formal expectation. Ideally, they should set up an automated transfer to your checking account for the same day every month.
• Have Them Explore Health Insurance Through the ACA. Just because you can keep any adult child on your own health insurance policy until they reach age 26 does not mean you should. Hear me out. If you are responsible for any part of your health insurance premium through work, ask the benefits folks to recalculate your contribution if your adult child(ren) were no longer on the plan. Then have your child shop for a policy through the ACA program. It’s important to realize that a young adult with limited income is likely going to qualify for subsidies. If the ACA option is less expensive, I think it’s worth considering having them make the move. (One caveat: If a child has a chronic condition, check with their existing doctor if they accept the ACA insurance before making the shift. Many ACA plans have “narrow” networks of doctors compared to your workplace plan.)
• Get Confirmation They are on Pace with Student Loan Repayments. Repayment of federal loans starts within six months of leaving school, regardless of whether your child has a job or not. The only way to delay payment is to formally apply for a deferment or forbearance. Sticking their head in the mud is not an option.
• Push Retirement Savings for the Employed. If they are eligible for a retirement plan at their job, and it comes with a matching contribution, you are to make it clear they will be kicked to the curb if they don’t participate. The younger they start saving for retirement, the less they will need to save on their own, as compounding will have many more years to work its magic. And if it’s not clear to them, walk through how the match is effectively a bonus. And no child of yours would ever be silly enough to turn down a bonus.
For children with a job but without an employer retirement plan, make it clear that you expect them to save in a Roth IRA. The contribution limit this year is $5,500. But you can get started with far less, at discount brokerages such as TD Ameritrade. An automatic deposit of $100 a month that grows at an annualized 5% will be worth around $6,800 in five years. Even if they stopped investing more—not suggested!!-the $6,800 will be worth nearly $50,000 in 40 years, when they are in retirement, assuming the same 5% annualized return.