Financial Advisor

April 2011 issue

Homeward Bound

In a tough economic environment, some clients must deal with their children moving back home.


Bonnie Goldman, a 64-year-old retired engineer, was living alone with her husband in a four-bedroom house in Laguna Niguel, Calif., when her daughter ran into financial trouble and was forced to sell her home. Now the daughter, 40, her husband, 46, and their two daughters, ages 5 and 7, have moved into Goldman’s house.

Goldman not only lives with her daughter, who is a chef, but works as the director of catering on her daughter’s culinary enterprise. She says everything is going pretty well, but acknowledges it’s been an adjustment and that she and her husband discussed having her daughter’s family remain in the house while renting another place for themselves. They dropped the idea for fear her daughter wouldn’t be able to make the mortgage payments.

“My husband and I have been alone for a number of years, and to then have two very active little girls, tweenies, running around is a challenge. But we love it. We get to see them grow up every single day.” But she adds, “I’d say it’s our 12-step work that makes it doable.”

She hasn’t set a time limit on the arrangement—she says she could never put her grandchildren out on the street—but she anticipates that her daughter’s family will be out of the house soon anyway. Her daughter is now teaching to bring in extra income, and her son-in-law’s business has picked up. “Sometimes you just like your space—especially with the two little ones running around. They have no boundaries whatsoever,” she says.

Goldman’s situation is not unique. In a persistent economic downturn that’s seen far more people fired than hired, many of the unemployed are now moving back in with their parents to make ends meet.

Indeed, a November 2009 survey by the Pew Research Center found that 13% of parents with grown children reported that an adult son or daughter had moved back home that year. “We’re having this conversation with our clients much more today than we were just a year and a half ago,” says Larry Rosenthal, a CFP licensee who owns a firm in Manassas, Va. Rosenthal says he has at least a dozen clients in this position today. And he belongs to a network of financial advisors across the country who are seeing the same thing. There were a million foreclosures last year, many of them on people’s primary residences. And those people have to land somewhere.

In most of the cases Rosenthal has seen, the children at home are in their mid-20s and actively looking for jobs, accepting underemployment or being paid far less than they are worth. In any case, it’s difficult for them to find their own housing.

Karen Gail Lewis, a marriage and family therapist based in Cincinnati, says most commonly the children have either just lost their jobs or never found one after college. They might be recently divorced and facing financial difficulty.

Such situations can be very stressful on both the parents and the children, she says, because everybody falls back into the old roles they had when the children were in high school. The parents can become bossy and dictatorial, even though the children are no longer teenagers. Sometimes the children have already gone out into the world and had their own apartments, even houses. They no longer respond well to being told when to come home at night or when to get up in the morning.

“A lot of the complaints I hear are, ‘My son sits around all day long and sleeps till 3, and stays up till 2 in the morning,” Lewis says. “For the unmarried ones who’ve moved back home, the adolescent struggle seems to continue, where mom and dad still want to be mom and dad, and the young adult wants to be independent.”

Women who come home can be particularly problematic because friction with their mothers can be reignited as the two struggle over how to raise the child, Lewis says.

“One daughter screamed, ‘You always criticized how I did my hair, and now you’re criticizing how I do my daughter’s hair. She has one strand of hair!’” Lewis says.

Among her patients are a couple who had been living in New York but then moved in with the wife’s parents in Cincinnati. The parents no longer like her husband because they think he’s not looking hard enough for a job. Sensing how her parents feel, the daughter has put pressure on her husband to find work and, not surprisingly, that has strained their relationship. To make things worse, their child is colicky, making it difficult for everyone to sleep. The woman’s mother suggests she drive the child around in the car. The daughter doesn’t believe that’s the best way to address the issue.

The tension among the family members (as well as the crying baby), makes it unpleasant even to see them as patients. “I’m glad they only come to see me once a week,” Lewis says.

It doesn’t actually cost that much for children to move in with their parents. By most estimates, it’s just a couple of hundred dollars a month—though that figure could rise to $400 to $500 if the parents eat out a lot and start taking their child with them. In fact, it’s not the water, cable or electric bills that rise when the kids move back home. It’s the grocery bill. One advisor says he had a client whose pregnant daughter and soon-to-be husband were living with them, and the client complained the couple was literally eating them out of house and home.

The cost, while minimal, can slowly erode the parents’ retirement account or prevent them from putting away additional funds each month. And if they were about to move to a retirement community, those plans may get put on hold. “How much time the parents have to save must be respected by the adult child,” says Guy Penn, founder of G.M. Penn Wealth Management in O’Fallon, Mo.

Penn says he worked with a couple in their mid-50s who were close to retirement when their child returned home. Those years see the parents’ peak earning power, whereas the adult child has a lot more earning power ahead of him.

“As an advisor, you say what everyone knows. You’re talking to educated, intelligent adults. But sometimes emotions take control and can blind people to the realities that exist on paper.”

Advisors recommend charging rent—even if it’s a nominal amount. Some parents give it back at the end. Others use it to defray the cost of having the child living back home.

But even more important is to manage everyone’s expectations. Some advisors suggest creating a contract, complete with rules and monthly goals, outlining what will happen if the goals aren’t reached. The contracts include everything from curfews and what time the child should be out of bed in the morning to household chores and who will do the child’s laundry, make their meals and vacuum their room. The agreement should also have milestone markers or goals that the child must achieve each month. The parents would then meet with the child every 30 days to assure they’ve met those goals.

In the first month, for instance, the child should get a job—even if it’s in a fast food restaurant—just to get some money coming in. But by the second or third month, he should have sent out a certain number of resumes and gone on a certain number of job interviews, lest he get stuck in the low-paying job. “You have to make sure the promises are kept, and you need written warnings, just like someone gets write-ups on a job,” says Peter D’Arruda, president of Capital Financial Advisory in Cary, N.C., and host of a weekly radio show entitled “The Financial Safari.”

D’Arruda, who is also a life coach, says there’s nothing wrong with parents helping their children out if they run into trouble—provided they can afford it—but the parents must show tough love and set clear expectations about when the kids are supposed to get back on their feet. While this can be hard with any child, it’s even harder when the children have what D’Arruda calls an “anchor baby,” or grandchild. “But even birds throw their chicks out of the nest,” D’Arruda says.

Dr. Howard Haller had to take a hard line with his son, though it was probably easier because there was no grandchild involved. When his 36-year-old son, who was a commercial photographer, fell on hard times, he moved back in with Haller and his second wife, Rose. Haller made the son sign a contract. He was used to having children return home. Both he and his wife are on second marriages, and together they have six children, four of which have landed back home over the last five years. Upon their return, Haller made every child aware of his responsibilities in the home. He then put those responsibilities in writing and had each child initial them to assure he understood what was expected.

“I wanted them to understand, there’s no maid service included. It’s not like when they were teenagers and mom and dad were going to pick up after them,” Haller says.

But his son, the photographer, over the course of a year tested the limits of the contract and Haller’s patience. The situation became so intolerable that Haller took his son out one night to Mongolian BBQ, one of the young man’s favorite restaurants, and had a heart-to-heart talk with him about how he wasn’t fulfilling his side of the contract, particularly when Haller would go away on business and the son was left alone in the house with his stepmother. Haller then said if the boy didn’t shape up, he was out. Within a week, the son decided he was going to move out.

“We had to do it. For my sanity, for my wife’s sanity, and for his growth and well-being,” Haller says.


Copyright © 2011 Charter Financial Publishing Network Inc. All rights reserved.