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When there’s no empty nest…but your nest egg is emptying

20 May 2022 Consult by Momentum

Kids are staying home for longer - what it means for your finances

Globally, research has revealed that young adults are living at home with their parents for longer stretches of time – or are moving back after leaving the family home, earning them the title of the ‘boomerang kids’.

In 2020, the Pew Research Centre reported that more than half of the young adults between the ages of 25 - 35 in the United States were living at home – a phenomenon exacerbated by the pandemic. Britain reported a similar scenario, with Loughborough research finding that the majority (54%) of young adults were staying at the parental home until their late 20s, while up to a third of those in their early 30s were still at home.

While current statistics for South Africa are not readily available, in 2018 Statistics SA reported that around 32.2% of households had more than one generation living under one roof, while in that same year one South African financial services provider said that around 42% of 18 to 34-year-olds were still living at home – a number which is expected to have climbed since the onset of the pandemic.

Warren Wilkinson, Franchise Principal and Certified Financial Planner at Consult by Momentum, says that anecdotally and over the past decade, he has seen more young adults staying at home with their parents for longer periods.

“Considering that the average cost of tertiary tuition over a four year period can amount to around R350 000, some parents might not be able to afford the cost of accommodation for their children as well.

“For those young adults who’ve finished their studies and have entered the workforce, they might not yet be able to afford the cost of a bond or rental – especially in pricier metros such as Cape Town – and so reside with their parents.

“In my practice, we’ve seen a trend emerge in that even the most qualified graduates are struggling to leave home. For a parent, the average cost of accommodating a young adult can amount to around R100 000 per year, when you consider meals, clothing and other essential expenses. And that does not take tertiary education and entertainment into account!”

Wilkinson explains that this has a knock-on impact on the finances of caregivers. “Consider that only around 4% of South Africans can afford to retire comfortably, so a child staying at home for longer periods may put pressure on the provider’s ability to direct money towards their retirement.”

However, in an interesting and apparent contradiction to the above, Wilkinson says that even when children do leave home in their early 20s, their caregivers are not necessarily saving a great deal more than those with children still at home. “We’ve seen a lot of our clients travel more when their children leave home. There are also instances where one caregiver has been a stay-at-home mom or dad, and when their kids leave the home they look at starting a new business venture – which typically requires capital – or they spend more of their disposable income on their grandkids.”

One study confirmed this, finding that when children left the family home their parents typically consumed less – but didn’t necessarily save more.

So what does Wilkinson suggest for those whose children eventually fly the nest?

“Your retirement savings are critical. If the expense of caring for your child for longer than expected has eaten into your savings, use the period after they leave to play catch up. This will allow you to maintain your lifestyle in your later years. Medical aid and critical illness cover are also two things you do not want to skimp on, as medical care can place huge pressure on your ability to maintain your lifestyle.

“Some clients also consider downscaling their home, as they no longer require the additional space. This might also provide a source of additional funds that you can channel towards your later years.”

For the most part, says Wilkinson, young adults will likely require some form of financial assistance from their parents, until such a time as they are well into their careers and able to independently support themselves.

This is why generational wealth planning is key. “Even with sound planning, it can take between three to four generations to accumulate wealth. We encourage our clients to look at setting up a family trust structure with proper stewardship – this will make your growth assets available to the generations that follow you while helping your children build their wealth over time.”

No matter how wealthy one might be, Wilkinson maintains that ‘every level brings another devil’ - meaning that parents will always experience some degree of financial stress in relation to their kids. This is where the guidance of a qualified financial adviser well-versed in wealth management comes into play. “They will be able to craft a plan tailored to your unique needs and lifestyle.

Concludes Wilkinson, “We want to ensure that our child has security and the best start in life that we can give them – but, with sound financial planning, this doesn’t need to come at the expense of your lifestyle.”

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