Cary, NC – Many college graduates recently packed up their dorm rooms and returned to their childhood homes to reunite with roommates, mom and dad. Given the economic environment, many will remain living with mom and dad for awhile and join what has been dubbed the “boomerang generation.”
The Boomerang Generation
The boomerang generation can easily develop bad habits while living back at home. The most common issue is simply becoming reliant on the Bank of Mom and Dad, despite holding a degree and hopefully collecting a steady paycheck.
If you’re a parent of a member of the boomerang generation, it’s important to encourage the financial independence your child hopefully learned while away at school. Here are some basic principles to teach them while back under your roof so one day they can live comfortably on their own.
1. The Power of Compounded Interest
The last thing on most recent college graduates’ minds is retirement. They’re focused on starting a career, not life after it.
Parents should encourage saving in a dedicated retirement account, especially when new jobs offer retirement plans. Make sure children understand the power of compounded interest. For those who have a retirement plan available to them, support a strategy that involves actively contributing, even if it’s in small increments.
However, in order to truly emphasize the importance of saving for retirement, lead by example. Explain to your child how you will pay for expenses in retirement and teach them about savings vehicles like 401(k)s and IRAs. If you have trouble explaining these, it might be time for a refresher course. Consider bringing your child when meeting with a financial advisor, and both of you will learn something!
2. Resisting The Urge to Splurge
One of the benefits that draw children home is the prospect of living rent-free or paying a significantly reduced rate. Not to mention other basics like food and utilities are taken care of.
In order to minimize your child’s desires to spend their new earnings frivolously consider working with them on a budget. The budget should include, even if in small increments, financial contributions involved with running a household. This practice now will help them develop sound habits for later, when life gets more complicated (student loans, car payments, mortgages, kids, etc).
Remind them that individuals who live on a budget are the ones who can afford life’s luxuries because they’re disciplined. If you see your child developing poor spending habits, explain the expenses you have incurred over the years and make sure he or she understands one day they’ll be responsible for the same.
3. Don’t Forget the Debt
Your child likely has student loans to pay back. According to a recent study by PNC student debt is on the rise with 60 percent of students owing roughly $45,000 after graduation. (Coach Pete recently discussed this issue on NBC 17).
While some loans provide a grace period, it’s a wise decision for borrowers to begin paying them off as soon as possible. Doing so, your child will decrease the amount of interest paid while boosting their credit score. You may consider suggesting that your recent graduate allocate some of their graduation gift money toward an initial principal payment on their loans.
4. Remember Your Own Retirement!
While these tips are things parents can do for their children to ensure financial success, don’t forget about your future. You cannot put off saving for retirement so your child can live comfortably while getting a head start in life. Establish the ground rules and, for most children, it will only be necessary for you to pay for basic necessities. Beyond those expenses, it’s time for them to gain financial independence.
It’s admirable you’re giving your child a good start on his or her adult life by providing a home and perhaps some other necessities such as food and even transportation. These tips should provide a foundation for a lifetime of financial success and when the time comes for your child to leave the nest – again – he or she won’t be returning.