Sort out finances when kids move back home

By Cara Baruzzi

Jun. 9, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --

TRADITIONALLY, many parents expect the scenario to go like this: they raise their children, teaching them the skills they will need to one day be self-sufficient until eventually, as adults, the children are ready to leave the nest and set up a home of their own.

Increasingly, though, that is not the case, as a growing number of adult children -- some just out of college, some much older -- are returning to live at home. While it may be a touchy subject for parents and children to discuss, financial matters should be tackled before a decision is made to let grown children come back home, according to the Connecticut Society of Certified Public Accountants.

"Many times, parents feel an obligation to help their kids," said Paul A. Caiafa, a certified public accountant at Solakian, Caiafa & Co. LLC in Hamden. "In doing so, they will often overlook or ignore what's best for themselves."

Parents must always make sure their retirement is a priority, he said. "That can't be ignored just because an adult child comes back to live with you," he said.

Along with recent college graduates returning home, there is a growing trend of older adults displaced by divorce, foreclosure or other circumstances asking to move back with their parents, he said. In some cases, as a result, young grandchildren are moving into the home as well.

In offering assistance to their children, parents must be vigilant in making sure their own financial security -- particularly their retirement -- is not jeopardized in the process, Caiafa said.

The Connecticut Society of CPAs urges parents to:

--Talk it over. Families may have many unspoken questions about how the new living arrangements will work, so it is best to discuss everyone's expectations in advance.

"Get everything on the table up front," including whether the child will pay rent and how much the rent will be, Caiafa said. When determining rent, parents should look at what area one-bedroom apartments are renting for and use that as a guideline, he said.

It also is important to determine ahead of time how long the child will be living at home, he said. "Make sure there is some timeframe involved," and also spell out whether the child will be responsible for paying for groceries, utilities or other expenses, he said.

Parents should make their adult children pay for any personal expenses, such as health insurance, cars and vacations.

"It shouldn't be the parents' obligation to pay for any of those," Caiafa said. "In order to give the adult child a better understanding of what financial obligations they have, they should really be doing a budget for themselves. There has to be some game plan for the child."

Parents should also set ground rules for living in the house regarding the use of drugs and alcohol, entertaining guests and other pertinent issues. "There are house rules that (children) should abide by," Caiafa said. "They should be set upfront."

Parents may even consider putting an informal agreement in writing, covering all of these details, so there are no misunderstandings later, according to the CPA society.

--Address insurance issues. Remember to consider both health and auto insurance issues for a child when he or she moves back home. For example, the child likely will be too old to be covered under a parent's family health insurance plan. If he or she does not receive health insurance from an employer, it is important to find the best plan for the child -- and decide who will pay the premiums.

In addition, if an adult child will be driving a family car that is in the parents' names, the insurance payments probably will increase as a result. Parents should find out how much more expensive payments will become and determine who will pay.

--Target support wisely. Beyond providing a place to live, should parents offer their adult children financial support during this transitional time in their lives? Parents who are able to help their child financially should agree to pay for items that represent an investment in their future. That means that helping them buy books for graduate school is a good investment, but paying for an expensive new car may not be.

It is important for parents to stand firm on money-related issues before deciding to let an adult child move into their home, even though it may be an uncomfortable topic to discuss.

Newstex ID: KRTB-0141-25852285