Boomerang

A question left hanging last time was how adult Boomerang kids – adults who had been on their own but who move back home for indefinite periods due to divorce or financial strains or other personal reasons – affect parents’ wellbeing and financial security. Let’s say reports on the subject are contradictory. A smattering of headlines: MarketWatch: “Boomerang Kids Aren’t a Burden – and They May Be Good for Your Retirement”; New Retirement: “Boomers Have a Retirement Problem: Boomerang Kids”; Forbes: “How Can Boomerang Kids Help You Retire Faster?”; PlanSponsor: “Boomerang Kids Can Put Parents in a Retirement Jam.” You get the idea. It’s no problem… unless maybe it is.
 
Looking beneath the headlines, the reason for the disparity becomes apparent. The upbeat articles all contemplate scenarios in which the adult kids are contributing substantially to the household finances with rent or by splitting bills. While this happens enough to not be rare, it is not the majority experience. The reason most of them moved back home, after all, is to get a break from bills. According to a Thrivent study 35% of Boomerang kids pay rent – the percentage is smaller of those who never moved out at all (and hence are not Boomerang). Only 47% are expected to pay for their own groceries.
 
As with so much else in modern society, there is a big divide between the upper 20% of earners and the 80% majority – not the 1% and 99%. Parents in the upper 20% do just fine when adult kids return. Further, those kids are likely to join (or re-join) the upper 20% themselves in due time. Since stories in business news media are overwhelmingly written by upper 20%-ers with expensive college degrees, it is no wonder so many of them are sanguine about Boomerangs and their parents. For the 80% majority things are different. The financial strain is felt by nearly all in this group, while for some members of it their future financial security is threatened. Notes PlanSponsor, “The Thrivent survey found that 35% of parents with boomerang kids have sacrificed their savings dedicated to long-term goals such as retirement or housing, and 26% of parents are unable to pay off debt or save for short-term goals because they are supporting an adult child.” Others have to continue working beyond planned retirement age.
 
The upshot is that it is hard to generalize beyond a certain point. For some families it is a non-issue financially. For others it is a real concern. In any case the motives and responses of parents and their kids are not all about the bottom line. People do things for their offspring because they want to, even if they stretch the budget. But Boomerangs would do well not to overestimate their parents’ resources. Perhaps the most telling discrepancy in the Thrivent study is that “72% of adult children believe their parents are financially equipped to support them, yet only 21% of parents said they could provide full financial support if their child moved back in.”
 
In part this is because Americans in general (again, aside from the 20%) are bad at saving – besides which, those savings have taken a hit from inflation lately. My own savings, for example, are nominally unchanged from what they were two years ago, but thanks to inflation in real terms they are 14% lower. This is actually better than average: retirees lost 10% nominally on average in the past year alone. The percentage of retirees with nothing saved at all is 37%. Median savings at 67 are $170,726 while the guidelines for average households according to Fidelity Investments state they should be $541,320. It’s no wonder parents feel the pinch when 34-y.o. Junior moves back into his old room and turns up the A/C.

 
Not everything is about money, it is true. But some things are.

Barrett Strong - Money