Living At Home To Save Money
Should Parents Invite Children Back Home After Graduation?
Fee-for-service financial planner and founder of PlanEasy.ca
It’s a challenging time for new graduates. The employment environment is difficult in many sectors/industries, plus the cost of rent and housing have outpaced inflation for years and years. It can feel very daunting to leave post-secondary when faced with mediocre job prospects and sky-high housing costs.
In some situations, the “bank of mom and dad” will step in and provide support. But, for the majority of families, that isn’t an option.
So how can parents help provide new grads a “leg up” in this challenging time?
More and more parents are inviting their adult children back home for 1-2 years after graduating to help them save money and pay off debt.
It may not be a cash gift, but it can provide nearly the same advantage.
Living at home to save money is a strategy that is on the rise. Parents are encouraging their children to take advantage of this opportunity and more and more adult children are doing it.
Living at home after graduation creates the opportunity to save $20,000, $30,000 or $40,000+ in one year, an opportunity that may never happen again.
Living at home for 1-2 years provides a huge head start for a new grad. This head start can be used to pay down student debt, build an emergency fund, start investing, buy a house etc. etc.
But it’s not all positive though. Living at home for a couple years also has risks. Without having a strategy in place it’s very easy to succumb to pitfalls like lifestyle inflation etc.
Here’s why parents should encourage their adult children to live at home for a couple years after graduation, and why new grads should seriously consider taking advantage.
How Many Young Adults Live At Home?
Before diving into the pros and cons of living at home, lets first take a look at how many young adults are currently living at home and how that’s changed over time.
Unsurprisingly, the number of young adults living at home is on the rise. Over the last few decades there has been a steady rise in the number of 20-35 year old’s living at home. In fact, in some cities the number of 20-35 year old’s living at home is nearly 50%! In Toronto, the percentage of young adults living at home is the highest at 47.4%*
For the 20-25 age group in particular, the trend has been towards living at home. In the 1980’s there were just 41.5% of 20-25 year old’s living at home. Over time this has steadily risen to 62.6% in 2016, an increase of over 50%*. Only one in three 20-25 year old’s have left their parental home!
The Benefit Of Living At Home
The financial benefit of living at home for 1-2 years after graduation is that expenses, especially housing expenses, can be minimized.
For a new grad who is looking for full-time employment, this can be a significant advantage. It provides time to find work in their field rather than take the first opportunity that comes up.
For new grads who are employed already, living at home provides the opportunity to save like never before.
Living at home after graduation creates the opportunity to save $20,000, $30,000 or $40,000+ in one year. This can be used to pay off debt, build an emergency fund, save for a down payment for a condo/house, or just get a head start on investing.
Thanks to the power of compounding, a $40,000 head start from living at home at age 25, everything else being equal, is worth $158,370 in 40-years! That’s a significant boost!
In addition to these very tangible financial benefits there are some other soft financial benefits as well. Paying down debt can make new grads more flexible in the future, allowing them to take advantage of new opportunities that may not be possible with a mountain of debt. Similarly, saving up a small emergency fund before leaving home can help reduce stress and provide significant peace of mind, plus it can help new grads avoid high interest debt like credit cards in an emergency.
The Risks Of Living At Home
Living at home isn’t all upside, however. One of the largest risks of living at home, especially when there isn’t a plan in place, is lifestyle inflation.
New grads who are living at home have been known to enter into big long-term financial commitments, vehicle leases being a common one. An expensive vehicle lease might seem reasonable while living at home but can quickly become too much when other expenses are introduced.
Other forms of lifestyle inflation are also a risk when living at home. This can include additional spending on clothing, vacations, restaurants, going out, and entertainment in general.
This type of lifestyle inflation can be difficult to reverse. New grads can quickly become used to this higher level of personal spending and this can have a lifetime of financial impact. This type of lifestyle inflation can cause quite a shock when moving out in the future.
Of course, there are also personal and psychological risks. Not all households are equal, and some family dynamics may not make it easy to live at home after graduation. All the financial benefits in the world may not be worth the complexity of living at home as a young adult.
Lastly, in many situations it just may not be possible. Either due to work or family circumstances, it may not be possible to live at home. For many families, their local area may not have the right job opportunities for a new grad, this may make it difficult to live at home while also starting a career in a certain field.
Living At Home To Save Money
It may not be “traditional”, but more and more parents are inviting their adult children to live at home to save money after graduation, and many new grads are taking advantage of this opportunity to get a head start financially.
But, if living at home is an option, it’s important to set clear goals and avoid lifestyle inflation.
Common goals include paying down debt, saving an emergency fund, saving up a down payment, or getting a head start on investing.
Whatever the goal, it’s important to have a plan and stick to it. Living at home is a once in a lifetime opportunity to save, so don’t waste it. By saving $20,000, $30,000, or $40,000+ a new grad will be significantly ahead of the game for the rest of their lives.
Financial planner, personal finance geek and founder of PlanEasy.