Giving Young Adults the Right Amount of $$ Help
The economy has been tough on everyone, but young adults have been particularly hard-hit.
What can parents do to help their children without going broke themselves? How can we help to push them out of the nest while still cushioning the fall?
"Early Show" money maven Ray Martin offers some suggestions:
Since the recession began, the percentage of young adults (defined as aged 16 to 24) who are unemployed has almost doubled to about 20 percent. This is the highest for this age group since the Bureau of Labor Statistics began tracking joblessness in 1947.
That means one-in-five young adults is unemployed.
Young adults are 13 percent of the workforce, but make up 26 percent of the jobless.
According to the Census Bureau, in 2008, the number of young adults living with their parents was about 15 million. With low pay and the burden of repaying education loans persisting, the latest data is sure to show more young adults being forced back home. And with the number of new jobs not even close to replacing those disappearing, that trend is sure to continue.
Advice for Parents Providing Financial Support to Their Adult Child
It's surprising how much money parents are giving their adult children and for how long. According to a recent University of Michigan survey, 41 percent provide financial support to their 23-28 year-olds, and the average amount they give given is an astounding 10 percent of their income!
It's natural for parents to extend help and support to their children. But sometimes doing this can do more harm than good.
Here are a few rules:
If you have credit card debt and are making small/minimum payments, are not saving enough for your own retirement, etc., then you cannot afford to give money to your kid.
Offer to Boomerang: Instead, parents can offer to have their adult child move back in, thus providing a low-cost living arrangement for their boomerang kid and a once-in-a-lifetime opportunity to improve his or her financial situation and get a fresh start. If you extend that offer, the first thing to realize is that your adult child is no longer, well, a child! Instead, he or she should be considered a household companion who can contribute to and help run the household.
Setting rules for charging rent, contributing to household duties, curfews, etc. can also help to set boundaries and give the parents and their boomerang kid a sense of what is in and out of bounds.
Rules to set include:
-- Will rent be charged and if so, how much?
-- Is the living arrangement for a limited term or open-ended?
-- Who will do which household duties?
-- Do you have a car and where will you keep it?
-- What's the deal with curfews, visitors and sleepovers?
Cover Health Insurance: By Sept 23, all employer-provided health insurance policies will be required to allow a parent's child, up to his or her 26th birthday, to stay covered on the parents' existing health insurance. Check with your provider -- some will not be allowing this change until January. This is an especially good option if your kid has preexisting health conditions. But don't assume that staying on a parent's plan is always the better option. For example, a healthy 20-something adult can buy an individual health policy for about $150 per month, which may be less than paying extra to remain on a parents' existing policy. Check out sites such as ehealthinsurance.com for a low-cost policy.
Resist financial bailouts: Don't give in to the urge to pay off your kid's credit card debt and student loans. Instead, urge him or her to make his or her payments more affordable by consolidating the student loans or using the Income-Based Repayment option (a new option made available last year), in which the payment is capped at 15 percent of discretionary income. They can also opt to stretch out payments over 12-to-25 years to make payments more affordable.
Never co-sign for credit cards: Under the new credit-card rules, anyone under age 21 cannot get a credit card unless they have sufficient income or their parents co-sign for it. Parents should never co-sign for their kids' cards -- that could put their own credit at risk. Parents who want to monitor their student's use of a credit card can arrange to receive duplicate statements or set up online access to view the account's activity. Also, help your kid create a debt pay-down plan and establish savings goals.