Even before the coronavirus pandemic ravaged the UK economy, times were tough for Generation Y – or ‘Millennials’ as they are now more often known.
A struggling job market, wages failing to rise with the cost of living, and high rents have meant that getting onto the housing ladder has looked increasingly unobtainable for many. The pandemic has only made matters worse.
One consequence of this has been the so-called ‘boomerang’ phenomenon.
But what is it, and what impact could it have on your long-term financial and retirement plans?
The number of children returning to live in the family home is on the rise
Recent research from Loughborough University has found that nearly two-thirds of single adults aged between 20 and 34 have either never left the family home, or have left and since moved back there. That’s around 3.5 million young adults.
The figures show a rise in children living with their parents of 8% – from 55% to 63% – over the last 10 years.
The phenomenon is most widespread among more affluent families.
You might have a child living with you now, or one returning to live with you soon, having previously moved out.
Having a child move home could upset your household finances
The Covid-19 outbreak is predicted to hasten the already rising ‘boomerang’ phenomenon. The job market is increasingly unstable and financial stress has also been linked to the breakdown of relationships, another major cause of children returning home.
But what does an adult child in the house mean for your finances?
That very much depends on the child and their level of financial independence. You’ll need to have some frank and open discussions to weigh up the impact in the short, medium and long term. First off, will your child be contributing rent?
With many young adults struggling to get onto the housing ladder, and private rental amounts high, many young adults are returning home to make saving for a deposit easier. That might mean all their money is going into savings, but you might ask for rent too.
Household food and power bills are likely to increase and that money will need to be found from somewhere. On the other hand, the sooner your child saves their deposit the sooner they will move out and regain their independence.
The effects could be long-lasting
You’ll need to balance the needs of your child and the household with your long-term financial plans.
If the added cost of another person under your roof lessens your pension contributions or the amount you invest into an ISA each month, for example, that could have a lasting impact on you in later life.
Equally, splitting the rent with a child could lower your monthly outgoings, allowing you to put more money aside. You might up your pension contributions or even look to retire earlier than planned.
Katherine Hill, a senior research associate at Loughborough University, told the Guardian, “Children living at home well into their 20s is not a temporary phenomenon. A lot of young people will spend most of a decade of their lives living like this.”
That could be a decade’s worth of additional pension savings, or missed opportunities for investment growth.
Opening the Bank of Mum and Dad could help your child regain their independence
A recent Legal & General study found that more than half of under-35s buying a home did so with financial help from their parents.
While a previous Legal and General report confirms that the Bank of Mum and Dad lent £6.3 billion to help a child onto the property ladder in 2019, This is Money suggest that one in five sacrificed their own standard of living in doing so.
Balancing the desire to help your child, with the financial implications of either paying their portion of the rent or providing them with a Bank of Mum and Dad loan, will be tricky.
We can’t make decisions for you, and often there is no right or wrong answer, but we can help you work through your options. We make a point of understanding your circumstances and your aspirations and a regular financial review can help us ensure that your finances are on track.
Get in touch
If you want to fund your child’s move into a new home, you might look at releasing pension funds, encashing investments, or even remortgaging your home.
You’ll have to consider whether your pension fund is large enough to provide you with your desired standard of living for the rest of your retirement and whether any Income Tax or Capital Gains Tax might be levied if you withdraw a large amount from your investments.
All of these are big decisions.
If you’d like to discuss any aspect of managing your finances following a change of circumstances, or you’d like to discuss the implications of opening the Bank of Mum and Dad, get in touch. Please email firstname.lastname@example.org or call 0115 933 8433.