Multigenerational Money Issues – Are You Impacted?
When I was a young adult just out of college, the number one thing that my friends and I did was move out of our parents’ homes and get an apartment by ourselves or with a couple of friends. Becoming financially independent by paying our own housing costs was one of the biggest financial actions we could take. To be known as someone still living at home labeled you as somewhat of a failure. The same was said if you were just married and lived at home. Society kind of shamed you for living like this. You were stereotyped as a couple who could not support themselves. In this post, I will explain how things have changed and the issues that have arisen as a result.
In a September 4, 2020 release, the Pew Research Center stated that the pandemic has pushed millions of Americans, especially young adults, to move in with family members to create multigenerational households. Pew defines these households as a home that includes two or more adult generations or including grandparents and grandchildren younger than 25. The share of 18- to 29-year-olds living with their parents has become a majority since U.S. coronavirus cases began spreading early this year, surpassing the previous peak during the Great Depression era of the 1930s. Pew reported that in July, 52% of young adults resided with one or both of their parents, up from 47% in February.
The number living with parents grew to 26.6 million, an increase of 2.6 million from February. The number and share of young adults living with their parents grew across the board for all major racial and ethnic groups, men and women, and metropolitan and rural residents, as well as in all four main census regions.
What we are seeing is that American households are rapidly evolving. Traditional family households with parents and children have transformed into a mix of various generations. The coronavirus pandemic has accelerated the growth of multigenerational households, including adults with children living at home right after college, young working adults coming back home because of pandemic caused job loss or aging parents living with their children rather than at senior or assisted living facilities.
Each new living arrangement has its personal reasons for opting for the multigenerational structure, it's a trend growing across cultures. The weak economy, high jobless rates, increasing childcare costs and the skyrocketing increases in the cost of eldercare are all forces that are feeding this trend. Add on top of this, the actions we all need to take to remain safe in the pandemic and you can see that this trend will likely continue for the foreseeable future.
This trend is also causing households to reconsider how they manage money, save and prepare for the future. Here are five major financial considerations that you should think about if you are living in a multigenerational household. I have not addressed the psychological and emotional benefits that arise from these new household arrangements.
1. Open Lines of Extended Family Communication. To make the situation best for everyone an environment of trust should be created through proactive communication. Family leadership is encouraged to involve the younger generation (including teenagers) in family meetings where the issues facing the home are discussed, issues raised and solutions agreed upon. This level of transparency ensures that expectations are aligned and that open discussions can take place around money matters for everyone. A byproduct of these meetings is the teaching of good money habits to all attendees.
2. Cost Sharing Ground Rules. If you enter into a multigenerational arrangement, having a set of agreed upon ground rules for which party is paying for which expenses is paramount. For example, in one situation I have seen the adult children moving in agreeing to pay the mortgage and related housing costs in exchange for the parents providing childcare for their young children. In some cases, the party moving in does so only after agreement has been reached on the amount of room and board to be paid or services to be provided in exchange for the housing arrangement.
3. Housing Modification Needs. As the pandemic has shifted the way a home functions in multiple ways, more people are putting time and investing into home-improvement projects that help a home function well for everyone who lives there. This is particularly important for people transitioning to multigenerational households. How these repurposing costs are shared needs to be considered. For example, adding a new full bathroom or separate entryways may significantly improve the quality of everyone’s daily life.
4. Wills and Estates. What happens to everyone if there is a death in the extended family unit. Does everyone need to relocate? How are estates settled where survivors need cash from the property to pay for living or educational expenses? These are just two issues that need to be discussed and legal agreements put in place with the help of an attorney.
5. Forced Savings. If the primary reason for one party moving in is to save money to pay-off debt or accumulate cash for their own home purchase steps need to be taken to make this happen. Sticking to a strict budget and monitoring it on a regular basis are essential actions that should be taken.
The pandemic has created the opportunity to reconsider our living arrangements from both a financial and psychological standpoint. The newly formed multigenerational household’s daily rules for how money is handled and costs shared needs to change as well. Transparency as to the financial, estate and taxation matters of the household is paramount to making the arrangements successful for all parties. Working with a good financial advisor to make sure all your financial bases are covered makes a lot of sense for all involved.
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