Credit & debt management

Don't let "boomerang kids" derail your financial goals

Aug 09, 2011

Watching your child graduate from college is an exciting time for you both as you imagine what the future holds. But, many graduates quickly realize that post-graduate life is more expensive than they planned.

Affectionately known as boomerang kids, nearly 18 million college graduates move home with their parents after graduation due to post-graduate financial pressures including lack of a job, credit card debt and colossal loan payments, according to the US Census Bureau.

“Children moving back into the nest can wreak havoc on your finances because parents don’t treat the situation as a business agreement,” Milt Fullen, CPA, financial advisor with Fullen Financial Group, said.

“Children make career and lifestyle decisions while in college and those decisions need to be tested in the real world as soon as possible. Financial issues will arise, but problems are much easier to correct when your adult children are young and relatively unobligated financially by a mortgage or their own family than they will be 10 years down the road.”

These tips will help you stay on track while helping your children start their post-graduate lives on sound, independent financial footing.

Set a time limit

Establishing a target date for move out, whether it is a few weeks or a few months, will help your child focus their financial planning and ensure your savings aren’t depleted. The goal is to make sure everyone involved understands this not a permanent move back to the nest but rather a stopover to post-graduate independence.

Help restructure debt

Repaying a child’s debt will not teach them money management. Instead, help them restructure, establish a realistic payment plan and avoid new debt. If your child owes substantial money and you want to help, one option is to match their debt-reduction payments with the understanding that they will not accumulate more debt.

Avoid financial entanglement

If you decide to help your child service their debt, do not become embroiled in their finances. Co-signing loans or taking out an equity line of credit on your home puts your savings on the line and should be avoided unless it is an absolute necessity.

Charge rent

In the real world, your child will not live for free, and now is the best opportunity to drive that point home. Whether the rent is $50 or $300, make sure you and your child have an agreement that they will pay rent. If you don’t need this rent money, consider investing it for your child’s future nest egg.

Think insurance

Losing student status and without job prospects, your child will likely be without health insurance. Rather than risk accumulating colossal medical debt, look into summer student health insurance. These policies usually require that you sign-up within a month of graduation, so if you missed the deadline look into other short-term insurance policies. These usually exclude pre-existing medical conditions and do not cover prescription drugs, but despite these gaps, these policies serve as a safety net for catastrophic medical events that can ravage any nest egg. And, you usually can cancel the policy at any time and receive a pro-rated refund.