Q: My ex-husband cosigned a car loan for our 18-year-old son who just graduated high school in June. The plan was to buy an older used car, but my son came home with a three-year-old truck and loan payments that will be hard to keep up with if his hours at work change or he goes back to school.
If I had known about it ahead of time, I’d have suggested shopping around to find a more affordable vehicle. What my ex forgot to account for was that if our son doesn’t go back to school, support payments will end. I can’t afford to support my son on my own, so he’d have to pay rent if he chooses work over school. Rental costs combined with the car loan payments almost certainly means he would need a second job to cover both. My ex and I have a good relationship so I will talk to him about this, but is there anything you can suggest before I do? ~Lisa
A: Navigating the ins and outs of co-parenting is hard enough when everyone lives under the same roof. Dealing with a former spouse and then a child on the cusp of legal adulthood is that much more challenging. The saving grace in your situation is that you have open lines of communication with your former spouse and son. It will make the transition easier for all of you as you establish your family’s rules and expectations in this new normal.
Start with a family meeting
There is no one-size-fits-all solution when it comes to young adults living at home or branching out on their own. It will be important to keep the lines of communication open between all of you, and to acknowledge that it will take co-operation and compromise to determine how best to resolve this for your family. What works for one family might not work for another, so go easy on yourselves as you decide what will ultimately work best for you. However, be as forthright with your son as you can about any financial arrangements between you and your ex-spouse that pertain to him. It will give your son a better appreciation of the situation and context as he considers his next steps.
Should Working Adult Kids Living at Home Pay Rent?
Help your young adult child consider their debt
For a young adult who has taken on a loan, they may not have realized at the time that the debt payments will impact their future choices. It is easy to be swayed by that new-car smell but not appreciate how a loan payment every month for several years will limit your ability to go to school, change jobs, travel, or save for future goals. Suddenly feelings of freedom turn to regret.
You may need to help your young adult determine how best to address their debt. Bailing them out could have lifelong consequences on their relationship with money and ability to establish their financial independence. Help your child understand the benefit of paying the debt off faster and how an increase in their income, or a more disciplined approach to saving for debt repayment, would help. Another option, if the loan is secured and the payments are getting unmanageable, is to sell the asset the debt is tied to. That will hopefully pay the loan off, or only leave a small residual amount left to pay. However, some loans have a pre-payment penalty, so encourage your child to check the terms and conditions before making a large payment.
Typically, a balanced approach is the best way to deal with debt. Look for ways to increase your income and decrease your spending to top up payments as much as possible.
Why Messing Up Financially Might Be Good for Your Kids
Should young adult kids pay rent?
There are varied opinions about whether or not young adult children who choose to enter the workforce without first obtaining an education should pay rent if they remain living at home. A lot comes down to the financial situation of the parents and what your goals are, both for yourselves as well as you children.
If you are able to help your child, determine how best to do that for their future well-being as well as your own. The money you spend now helping them establish their lives takes away from your own budget, which could leave you with less available funds for routine expenses, debt payments, or retirement savings. Only you can determine if this is a wise investment. Discuss your decision with your child so that they understand the motivation behind your support as well as their responsibilities because of it.
A working young adult child could be saving the money they aren’t spending on rent and putting it toward future goals or using it to pay off debt. It will take trust on your part that they are indeed doing that and not financing a lifestyle of fun based on your generosity.
A young adult child who lives at home rent-free while going to school will have an easier time focusing on their schooling if they don’t need to worry about what would arguably be their biggest monthly expense. Your generosity could lead to less debt at graduation and better job prospects.
If you are concerned about your child’s ability to become independent, and if it’s in line with your goals and financial capability, you could charge them a modest amount of rent rather than the market rate they would pay if they moved out. You could agree to increase the amount on a set schedule so that your child has time to work up to their new obligations.
Adult Kids On a Spending Spree? Why Not to Bail Them Out
Another option is to charge your child rent but save all or part of the money on behalf of them. Some parents who save the rent money tell their children about the arrangement, but many do not and surprise them at a future date when the savings can be used for a significant purchase, such as to help with the down payment on a home of their own. The benefit of this approach is that your child sees how saving monthly can really pay off for those important life events, and they start to emulate that behaviour. For this reason, it is important to remember that even if the money will be gifted back to them in the end, be strict about collecting the rent so that they take it seriously as well.
Transition your child to paying rent
In some families, there simply isn’t enough money to support working, adult children who live at home. If that’s the case in your household, help your child outline a reasonable budget and work together to determine a timeline for your child to become financially independent. Paying rent and all of their own living expenses is a big step for a young person and with guidance and a realistic transition time, you can help your child learn these important life skills.
How to Help Adult Children Move Out on Their Own
The bottom line on asking young adult children living at home to pay rent
If your goal is to help your child become financially self sufficient, you may want to consider flexible ways in which rent can be paid as you work towards such a time. Share routine expenses or household chores or divvy up the bills so that each person is responsible for paying specific ones each month. Supplementing a working young adult’s lifestyle can only go on for so long. Eventually, your own financial situation will be affected, or your working life ends and you’re no longer able to support your child in the same way you do now. Help your son or daughter be prepared with the money skills that will ensure their future financial well-being.
Is It a Good Idea to Co-Sign a Loan for Someone?
How to Help Family or Friends With Money
Back Out of a Family Money Commitment Gracefully
Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.