Boomerang Budgeting

What do you call an empty nest when your grown kids move back home? The Real World, recession edition. Job prospects for the Class of 2009 are "considerably below" those of the past five classes, according to the National Association of Colleges and Employers. Not surprisingly, many young adults have decided to wait out the recession under the parental roof, says Manny Contomanolis, president of NACE. Based on what he's been hearing, moving back home "is more prevalent than it's ever been.

"Cecelia and Jerry Cannizzaro are enjoying their full-house experience. Not only do they get a chance to reconnect with their two grown sons, but they're also helping them build a solid financial base so that when they're ready to fly the coop for good, there won't be any crash landings.

Mark, 24, has been living at home in Oakton, Va., since he graduated from the College of William & Mary in 2008. Stephen, 22, returned after graduating from the University of North Carolina at Chapel Hill in May. Both hope to find jobs that will pay enough to enable them to move out and be on their own. Until then, Camp Cannizzaro -- the family's light-filled, spacious home in a leafy Washington, D.C., suburb -- will have to do.

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But for many families, such newfound togetherness can be a challenge. To avoid heartburn on one side of the equation and boomerangst on the other, be sure to discuss expectations upfront (for editor Janet Bodnar's take on the boomerang experience, see Five Lessons From Boomerang Parents).

Make the rent decision. Since graduating last year, Mark Cannizzaro has worked at several temporary jobs, including a nine-month stint as a legal assistant at a Washington law firm. His parents allowed him to live with them rent-free for the first year. "At $16.50 an hour, how can you accumulate enough money to move out?" says Jerry, a financial planner. This spring, the Cannizzaros decided it was time to ask Mark for a modest monthly amount -- but they suspended the requirement when his last temp job ended.

Is it appropriate to ask your own flesh and blood to pay rent? Sure, says Sheryl Garrett, a financial planner and founder of the Garrett Planning Network. "You want them to have some semblance of reality, so it's not a free ride," Garrett says. That doesn't mean you have to soak them for all they're worth. "I'd charge less than the going rate. If the monthly rent in your market is $500, you might charge your child half that."

Some parents use the rent payments as a form of forced savings, stashing the adult child's monthly rent contribution into a savings account that can be used for future expenses, such as a down payment on an apartment when it's time to move on and out. But others, such as Carol Harms of Elmhurst, Ill., encourage adult children to take advantage of the family home for as long as they like. Charlie, the second of four, took his mother up on the offer. By working two jobs and saving hard, he was able to pay off $6,000 in student loans and save more than $30,000 -- by age 25.

Encourage the job hunt. Whether you charge rent or not, sooner or later you expect that your kid will find a job and accumulate enough money to get to the next stage of life. Everette Orr, a financial planner in McLean, Va., says that adult children who forever come up empty on the job front may not be looking in the right places. "What the kid is saying is, ÔI don't want to be underemployed or employed at something I don't want to do.'"

Fair enough, but you might decide to give your young adult time to focus on finding the job that will launch his or her career, or at least point it in the right direction. In that case, be clear that you expect the daylight hours to be well (not Wii) spent, says Garrett. "Tell Junior, 'While you're here, your job is to find a job.'"

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Or split the difference and insist that the kid get a part-time job, says Judy Lawrence, author of The Budget Kit (Kaplan, $20). "That gets them a little bit of cash, gives them some structure, and shows they are working." If they do well, she says, they could even impress the boss enough to score a full-time job.

Divvy up expenses. Young adults don't just lug a backpack and duffel bag through the door -- they also walk in with ongoing expenses and often a freightload of debt. In 2007-08, two-thirds of bachelor's-degree candidates graduated with student loans, owing an average of more than $23,000, according to Mark Kantrowitz, of FinAid.org. A 2009 study by Sallie Mae shows that undergrads carry an average of $3,173 in credit-card debt.

Somebody's got to pay those bills, but who and how? To sort that out, sit down with your kid and review his or her fixed and variable expenses, says Lawrence. Then, identify a resource for each one -- say, money from a part-time job for car payments, graduation gifts for entertainment, and the bank of Mom and Dad for food and gas.

Chances are, you'll end up with a few line items that your child can't afford to cover. With federal student loans, Uncle Sam lets you, the parent, off the hook by offering new grads a grace period of at least six months before repayment begins, and the government has repayment programs that suit every financial circumstance (see How to Repay Student Loans).

As for car and health insurance, you owe it to your peace of mind -- and your own financial security -- to keep the payments current until your young adult can take over. "The risk is that they walk in front of a car and wind up with big expenses," says Russ Childers, an independent insurance agent in Americus, Ga. "If you only have to pay a hundredth of that expense, it's worth it." (To explore health-insurance options, see the box below.)

Set the house rules. Imagine coming home from a long day at work and finding your sink full of dirty dishes and your newly minted grad awaiting a home-cooked meal. Bulletin to boomeranger, says Garrett: "If you don't have to come up with money to pay the rent, utilities or groceries, you've got to do some things around the house." Even the most assiduous job hunters have time to make themselves useful, she says.

Bret Crafton, 24, has been unemployed for more than eight months, having lost his job at Fidelity Investments when his division was moved out of state. Since he has been living at home, in Swampscott, Mass., he has learned that his mother, Phyllis, expects him to prepare the meals, not the other way around. He makes dinner three times a week, mows the lawn and does the grocery shopping -- all while looking for work, operating his own job-networking site (AgoraBoard.com) and studying to become a chartered financial analyst. Occasionally, he takes on a bigger job, such as fixing the brick steps behind the house, for which his parents pay him -- an arrangement that helps both sides out.

As for general house rules, adult children should at least behave as other good guests would, Garrett says. "They've got to pick up after themselves, lock the door at a certain time, not wake everyone up at night." You have a right to impose your values under your own roof -- but you might choose to live and let live. For the Cannizzaros, that means letting Mark and Stephen mostly come and go as they please. Says Jerry, the family cook, "All I want to know is whether they'll be home for dinner."

Keep the Kids Covered

Insurers once routinely dropped adult children from parents' policies after they reached 18 or 19 or graduated from college. Now, almost half the states require that insurers extend coverage to age 25 or even30. To qualify, adult children generally must be unmarried and live in the same state as their parents, but they don't have to be dependents.

Your child can extend his or her coverage for up to 36 months through COBRA, the federal law that allows people who lose eligibility to stay on their group policy. But because employers don't subsidize COBRA coverage, the price is steep. Whoever picks up the tab will pay 100% of the premium plus a 2% administrative fee.

In most states, adults who are young and healthy can get a better deal by going with individual coverage. A major-medical policy for a healthy 24-year-old averages $100 a month with a $2,000 deductible, according to Forrester Research. Young adults with a health problem may have trouble buying individual coverage in the open market. To explore your options or to shop for a policy, go to eHealthInsurance.com, or find an independent insurance agent through the National Association of Health Underwriters.

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