Personal Finance

Millennials moving out of Mom and Dad's place, study shows

Key Points
  • In 2017 about 31 percent of young adults were living back in their mom and dad's house. That's down slightly from more than 32 percent in 2016.
  • If you are among those parents who plan to let your adult children stay with you, there are ways to help put them on the path to financial independence.
CoStar Group: More millennials are moving out of their parent’s place
CoStar Group: More millennials are moving out of their parent’s place

If you have an adult child living at home, you could become an empty nester sooner than you thought.

The number of 18- to 34-year-olds living with parents last year edged down from 2016, according to new data from CoStar Group, a commercial real estate information company in New York.

Last year, 31.5 percent of that age cohort were living with Mom and Dad, down slightly from more than 32 percent in 2016. While still higher than the long-term average of under 28 percent, it's a downward trend the firm expects to continue due to the strength of the job market and overall economy.

"There are more individuals in that age cohort who are employed," said Michael Cohen, director of advisory services at CoStar. "We also should see some wage gains in that age range. … Both of those things help."

Cohen said the tight labor market — overall unemployment is about 3.8 percent — has led to a higher rate of workforce participation among younger adults.

"That gives me some degree of confidence that we'll see some more momentum … in [young adults] moving out of Mom's place," Cohen said.

Additionally, as young adults progress in their careers, their incomes should rise with those job advancements.

Millennials generally face financial challenges that their parents did not as young adults. On top of carrying most of the $1.5 trillion in student loan debt, their wages are lower than their parents' earnings when they were in their 20s.

A 2017 study of Federal Reserve data by advocacy group Young Invincibles showed that millennials earned an average of $40,581 in 2013. That's 20 percent less than the inflation-adjusted $50,910 earned by baby boomers in 1989.

Boomerang kids
Boomerang kids

As it stands, more than a third (35 percent) of U.S. workers are millennials (defined as those age 21 to 36 in 2017), making them the largest generation in the labor force, according to the Pew Research Center.

While financial independence might take longer to reach for some young adults, there are some ways that parents can help spur it along.

For starters, be sure to identify your goal when you allow your adult child to continue living with you or move back home.

"Parents don't like to see their children fail," said certified financial planner Rich Ramassini, a senior vice president with PNC Investments. "But there are things we can do to help them be more self-sufficient."

Make an expense list

Having an extra person in your house has a financial impact. While food and shelter might be a given part of the deal with your adult child, other costs might not be as straightforward.

For instance, your child might assume that you will keep them on your health insurance as long as possible (up to age 26, per law). There also might be car payments or insurance, or maintenance costs, cellphone bills and incidentals that need to be covered.

"Make the list as comprehensive as you can," Ramassini said.

Have the money talk

Once you have a handle on the expenses that will arise, it's time to sit your child down and have a heart-to-heart about your expectations.

"Make sure they know what they are responsible for," Ramassini said. "This will help you avoid having to actively negotiate every single expense as it comes up."

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Set a deadline

Assuming the goal is for your adult child to reach financial independence and move out, there should be a plan in place to reevaluate their situation at a specific point in the future.

That can be time-based — say, a year from now — or event-oriented, such as when the child lands a full-time job, has saved a certain amount of money or paid off student-loan debt.

The idea is to avoid the arrangement being open-ended. The less clear-cut it is, the more potential there is for resentment to fester over your child remaining dependent on you.

"If you are doing things for your child but you're resentful about it, that isn't good," Ramassini said. "Remember, there's a fine line between support and enabling."

Make it official

Whatever agreement you and your child come to should be put in writing.

While it doesn't need to be a formal contract, you should both read it and acknowledge your understanding by signing it.

That way, there's less chance that there will be any confusion over expectations, whether yours or your child's.