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The COVID-19 pandemic and the resulting economic downturn have greatly impacted the lives of young adults, forcing many to move back home – especially those who resided in densely populated cities or others who may have been laid off and are now hunting for a new job.

A September 2020 study from the Pew Research Center found that a majority of 18- to 29-year-olds are now living with their parents, surpassing a previous peak set during the Great Depression. The study found that young adults have been particularly hard hit and have been more likely to move home than other age groups.

Whether your adult child has moved back home or whether they are simply in need of some form of financial support during this time, the following tips can help parents empower their adult children to regain their financial footing:

Encourage Financial Independence

While it can be tempting to support an adult child during a turbulent period of their life – especially if they have experienced a financial setback during COVID-19 – it’s important to put guidelines in place to help them to regain financial independence. If your adult child is living at home, this could include encouraging them to earmark a monthly “rent payment” to be put toward their future selves via a savings or investment account. Doing so, and giving adult children a sense of financial responsibility, might help them build the confidence they need to regain their financial independence.

Support their Search for Income

For adult children who were laid off during the pandemic, or for those who have just graduated from college and have not been able to secure employment, it is critical for parents to make it clear that “doing nothing” is not an option, and that they must take active steps toward earning an income while living at home. This could include identifying a temporary form of local work or seeking opportunities to consult, freelance and/or network. Keeping your adult child’s daily life productive, and encouraging them to earn some form of income, will help them regain and maintain a sense of financial responsibility. The message imparted by establishing this rule is that your adult child must be working toward independence while living at home.

Offer Emotional Reassurance

Emotions like guilt and inadequacy can weigh heavy on young adults who have either chosen or been forced to move back home or are facing a different kind of financial setback. These feelings can serve as a roadblock to getting back on their feet—from finding the motivation to continue a difficult job search or put together a budget when disposable income is limited. Being a friend and guide to your child during this time can go a long way, even if it means proactively striking up conversations to work through the challenges. Finding ways to relate to their struggles and sharing advice on how you once overcame your own financial obstacles can help neutralize negative emotions and chart a path forward.

Offer Financial Support Via Gifting

Giving a financial gift to an adult child can offer parents or grandparents a meaningful opportunity to teach adult children about the importance of financial responsibility. The gift tax is a federal tax on transfers of money or property to other people while getting nothing—or less than full value—in return. Few people owe gift tax unless a gift exceeds $15,000, and even if the gift amount exceeds that value, it may just require filing a gift tax return while not warranting tax payment. Any excess amount beyond $15,000 could count against an individual’s $11.7 million lifetime exclusion, as of 2021. Assets received by young adult as a gift or inheritance typically aren’t taxable at the federal level, unless they produce income, which would then be taxable. A financial advisor can help determine the best way to give a gift to an adult child, based on state legislation.

Consider a Family Loan

Lending money to an adult child can help provide them with the financial support needed to get back on their feet. Successful loans, however, often require open conversation and transparent planning among all parties involved. Market interest rates typically need to be applied for the exchange of money to be treated as a loan—otherwise, it could be considered a gift by the IRS. An alternative to a family loan could be for parents or grandparents to co-sign a loan that an adult child takes out from a bank to help with the approval process. In doing so, the parents or grandparents share in the responsibility for any debt if the loan is not paid back.

Share Financial Lessons

For many, having adult children reach out for assistance or even move home is an unexpected blessing, offering the chance for the family to spend time together that may not have existed otherwise. Parents should take advantage of this time to share financial lessons, assist their child with financial planning and goal setting, help them set up an IRA or other investment vehicle(s) if they have the means to do so, and revisit the family mission statement and values when it comes to important topics like charitable giving, estate planning, inheritance and long-term care. An in-person setting can make these conversations even more meaningful, but a video call would work just as well.

Set a Tentative Move-out Date

If your adult child is living comfortably at home, it could be easy for them to become complacent and delay the steps needed to regain financial independence. Six months is a good ballpark for parents to aim for – at that time, a family conversation can be had about whether the time is right for the adult child to leave home. It is important for these family conversations to be a two-way street. Listening to your child and hearing their perspective on the proposed timeline is critical to maintaining a harmonious relationship and developing an action-oriented plan.

Despite the financial challenges that adult children may be facing during the COVID-19 pandemic, there is always a chance to start fresh and apply lessons learned to improve financial health and money management habits. Parents should strive to encourage their adult child’s independence by showing support and laying a few ground rules.

This piece is not intended to provide specific tax or legal advice. You should consult with your own advisors about your particular situation.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

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