Moving out of home used to be a big milestone that usually happened not long after you finished your education and got your first job.
But these days, more and more young adults are choosing to delay leaving the family nest, due to the high costs of renting or buying their own place.
According to the latest AMP.NATSEM Income and Wealth report, ‘Cost of Kids’, it’s older children that cost the most to support.
For a middle-income family, having a young adult at home costs five times as much as a baby or toddler. The new research reveals the average weekly cost of a baby is $133 per week, while those with an 18-24 year old at home shell out a staggering $678 per week**.
There are big financial implications for parents who are bearing the cost of adult children for much longer than previous generations. While it’s great to give the kids a good start in life, it’s also important for parents to address their own financial security.
Here are five top tips for parents with ‘failure to launch’ kids:
- Stop being the ‘bank of mum and dad’ – Let your kids know they can’t treat you like their personal ATM machine. Start educating them early by letting them earn money by doing household chores. When they turn 15, encourage them to get a part-time job, so they can start buying some things themselves. If they want an expensive item, ask them to pay for half, so they learn how to save.
- Let them know there’s no free ride – If older children are living at home it’s quite reasonable to expect them to contribute to household expenses by paying board. It’s also acceptable to ask them to cover the cost of their own car and petrol, outings and clothes. If they’re still studying, suggest they work part-time and on their holidays so they can be as financially independent as possible.
- Take advantage of HECS – It now costs a typical family $812,000 to raise two children from birth until they leave home, so don’t feel guilty about asking them to foot the bill for their own university education. Many students cover the cost of tertiary fees by taking out a low interest loan under the Federal Government’s HECS-HELP program. The loan is paid back through their taxes once they reach a certain income threshold.
- Don’t forget your own financial security – Before deciding how much support you can offer adult children while they’re still at home, speak to a financial planner about what shape you’re in for retirement. Take stock of when your mortgage will be paid off and whether you have a comfortable superannuation nest egg. It’s great to give the children a helping hand, but this won’t be possible if your own finances aren’t in tip-top shape.
- Have a launch plan – If older children are going to live at home for a few years, insist they have a savings plan so they can ultimately become financially independent and leave the family nest. If they’re spending all their money on a brand new car, designer clothes and dining out, chances are they’ll be no closer to moving out in five years time. Encourage them to set short, medium and long-term financial goals and check in with them at regular intervals to see if they’re on target.
By addressing their own financial health first, parents are not only setting a good example, but they’ll be better placed to offer their children financial support if they wish to do so.
*Mohamed Said is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
**Source: AMP.NATSEM Income and Wealth Report, “Cost of Kids”, May 2013
