If Your College Graduate Is Moving Back Home, Here's How to Make It Work Financially

There was a time when most kids who went off to college never moved back home—they graduated, found jobs and apartments, and left their empty-nester parents deciding whether and when to downsize the big family home in the burbs. But since the Great Recession, a growing proportion of college graduates, degree in hand, are moving back in with Mom and Dad.

Skyrocketing rent, high student debt burdens, and low wages have made it more difficult financially for new college graduates to afford to live on their own immediately after school. And today’s helicopter parents are often happy to welcome them home. More than one in four adult millennials—age 18 to 34—now live in their parents’ home, according to a recent Pew Research report, a share that has grown every year since 2007. And for the new college graduate, shifting social norms have made living with the parents less of a stigma.

But even as the arrangement grows more common, it’s still one that’s fraught with pitfalls, emotionally and financially, as both generations adjust to their new roles. “Both sides need to understand that the relationship has changed since they last lived together four or five years ago,” says Taylor Gang, a certified financial planner and vice president at Evensky and Katz, a wealth management firm in Coral Gables, Fla. “The child is now an adult. There is less parenting needed. The right role is to serve as an adviser to help him navigate this period.”

If you have a new college graduate moving back in, follow these steps to help smooth the transition:

Money Basics for Parents of a Boomerang Kid

Set the ground rules before the big move. Avoid conflict and resentment by discussing your expectations for the arrangement upfront. Decide if you’re going to charge your child a nominal rent if he’s employed and whether he’ll chip in for utilities and other household bills once he starts earning money. This is not just a question about what you can or can’t afford. “If you want your child to grow up and launch, you can’t coddle him to the point where he doesn’t have any bills,” says Jake Engle, a financial planner in Portland, Ore. “That’s not the real world.”

You should also discuss nonfinancial expectations rules about things like chores and overnight guests. The rules that were in place before he left for school probably won’t fly anymore. While you might no longer impose a curfew, for example, you might ask that your son lets you know when he'll be home late so that you’re not up worrying.

Finally, you’ll want to agree on how long you expect the arrangement to last. Having a moving date will serve as additional motivation for your child to move on.

Don't sacrifice your own financial security. Parents who are still supporting their adult children spent an average of $10,000 doing so last year, according to a recent report from TD Ameritrade. While you might want to help your new grad pay off his student debt or cover the first and last month’s rent on an apartment, run the numbers with your financial planner first. You don’t want your generosity to jeopardize your own financial security.

You need to be prepared to say ‘no’ to your adult child’s requests for cash for discretionary spending, including travel and going out with friends. Once he has landed a job, you should start scaling back (with a goal of ending entirely) your contributions to cell phone and car insurance bills and other expenses. This will not only help free up your cash but will also get your child used to the responsibility of making regular monthly payments.

Encourage saving. Since your new college graduate gets the benefits of a lower cost of living while home, now’s a great time for him to practice living below his means. One of the best moves that young adults can make is to open and fund a Roth IRA. Money put into a Roth now grows tax-free until it’s withdrawn in retirement, and savers will owe no taxes on withdrawals then, when savers will presumably be in a higher tax bracket than they are now. This year, young savers can put up to $5,500 into a Roth.

Adult children living at home should also be socking away money in an emergency fund. Ideally, they’ll have three to six months worth of expenses saved in a liquid account to cover unplanned costs. That fund will serve as a safety net for them so that they’re not running back to you for a bailout when they finally do move out.

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