Should you charge rent to adult children in the household?

Living with your parents after you reach a certain age of maturity is driven sometimes by necessity and sometimes by convenience. A person may move in with their parents if they are struggling with a job loss, divorce, or other personal setback. Others may consider it a good way to address student loans or save up money before striking out on their own.

A recent report by the National Association of Realtors found that one in six surveyed Generation X households were multigenerational, more than half as a result of adult children who never left home or moved back in. However, the report also notes how these children are increasingly able to use this situation to improve their finances, with younger millennials often choosing to bypass renting and purchase their first residence after they move out of their parents' home.

However, parents of adult children who continue to live at home will be confronted by a difficult choice: is it time to start charging their son or daughter rent?

The main benefit of collecting rental income from an adult child who continues to live at home is the ability to offset household expenses. Hosting an extra person means you'll need to spend more on food, utilities, and other costs. In a survey by the home improvement site Porch.com, respondents estimated that adult children who stayed in the household cost them an average of $459 more per month.

Charging a comparable monthly rent ensures that your budget won't see too much of a crunch. Maurie Backman, writing for the financial site The Motley Fool, says it also lets you contribute your income toward personal goals such as saving up for retirement or paying off a mortgage.

Requiring a monthly rent payment can help instill financial responsibility and prepare your son and daughter for the responsibilities that await them when they rent or buy a home on their own. Caitlin Wood, writing for the credit marketing firm Loans Canada, says a regular fixed cost will encourage them to manage their money in order to meet other expenses and build up a savings account.

Charging money for the privilege of living at home also helps reduce the chances of a child getting too comfortable with the situation. While it will typically be more expensive for them to move out on their own, even if a parent is charging rent, they may be more willing to make the transition than if they had to leave a rent-free situation.

A potential drawback of charging rent is that it will strain the budget of your child, making it more difficult for them to save up money and move out on their own. After all, many adult children seek to live with their parents in hopes of saving more money than if they lived on their own.

If you choose to charge rent to an adult child asking to move back in, it's important to set expectations right away. Wood says you should sit down with your son or daughter and explain why you want them to pay this monthly cost. You should come to an agreement on how much they will pay, when it will be due, and what you should do if they are unable to pay the rent.

One compromise is to charge rent, but make it affordable enough that it won't put too big of a dent in your child's budget. Lambeth Hochwald, writing for the financial site LearnVest says charging 10 percent or less of the child's income helps you cover expenses and emphasize the need for personal responsibility, but isn't so onerous that the child will have trouble saving money to move out in the future.

Another option is to let your son or daughter know that you will be putting the rent payments aside in a savings account, which you will then transfer to them once they move out on their own. This provides an added incentive for the child to start their own household, while also giving them a healthy nest egg to help them get settled in.

Even if you opt not to charge rent, it's important to set some expectations. These can include basic house rules, such as quiet hours. You might also establish goals, such as encouraging your child to save up a certain amount of money or setting a date for when you'd like the child to move out.

Many parents will also expect their child to kick in with certain tasks around the house. Wood says these may include housekeeping, buying groceries, doing laundry, or taking care of a pet or younger sibling. Backman says you might even give your child the responsibility of doing the grocery shopping and preparing dinner – tasks they'll have to be prepared for when they move out on their own.

One alternative to rent is having a child be responsible for a portion of the household expenses, or perhaps cover the bill entirely. Mike Loo, an independent financial adviser in Irvine, Calif., says these expenses may include cable, internet, or groceries.

You may also agree not to charge rent, but impose certain requirements on how your son or daughter manages their income. These may include having them deposit a portion of their paycheck into savings or a retirement account.

If you collect rent from your son or daughter, consult with a financial planner or accountant to see how this might affect your taxes. The financial site NerdWallet says you may need to declare the rent as income, or it may be subject to gift taxes if the rent is preferential to the tenant.

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