If You Only Have 1 Finance Conversation with Your Young Adult Child in 2021, Let it be This
American ideals are a trip. One in particular claims that leaving home and living on your own is a sign that parents have successfully parented, and that young adults are ready to face the world and provide for themselves. Long before I was 18, I dreamt of leaving home once I graduated high school and that’s exactly what I did. I made sure to attend college in Massachusetts, far from my home state of Maryland. I had a full ride that included the cost of room and board. After college I applied to Teach for America and was selected to teach in Hawaii. I lived there for the 2 year service contract, making $28,000 a year before taxes in one of the most expensive places to live in the USA. My rent was $1,000 a month, so I paid more than half of my take home pay to rent an apartment, not including other housing bills. I do not regret my experiences in Hawaii, after all it is there that I met my husband. But I will teach my daughter something different. I will encourage her to start house hacking at the age of 18.
Talk About House Hacking in High School
There are many obvious benefits to attending a close to home as opposed to out-of-state, including lower tuition costs, lower spending on travel home for the holidays, lower transportation costs, and more. A consideration of attending college close to home lowers housing expenses, whether a student stays on-campus at a dorm or home with their parents. Staying at home with parents allows thousands to be saved per year. This is a teenager’s first opportunity to start their FIRE path through real estate. Talk to your teen, encourage them to stay home while attending college, advise them on how to invest their money in low-cost index mutual funds, side hustle start up costs, or any other means to make their money grow. By living at home and investing the money saved on housing costs, your son or daughter will be on their way to retiring before they are 30. They may not be all that interested the first time the topic is brought up, but that’s okay. Bring it up again in a few months, go over the numbers with them.
VTSAX (a low-cost mutual fund offered through Vanguard) has earned its investors an average of over 7% annually since it was first formed in 2000. Assuming a 7% rate of return, the original amount of money invested doubles every 10.2 years. So if your college freshman saves $1,000 on rent over the course of 12 months, and invests that in VTSAX, that $12,000 invested in 2021 is going to be worth $24,000 in 2031. Do this all 4 years of college and the original $48,000 becomes well over $96,000. Before they reach the age of 30, your son/daughter will have almost 6 figures in their investment portfolio just by saving on college housing.
After College, Talk about House Hacking AGAIN!
Baby birds want to fly the nest. Maybe yours wants to do that at the soonest possible opportunity. This means living away from home for college. But what about after college?
Like I previously stated, Americans place lots of value in living on your own after college, or living on your own after high school if you choose not to attend college. If one goes against this norm, people around them assume they are lazy, immature, codependent, and unsuccessful. This is not always the case, as shown by different norms for post-secondary living arrangements across the world. When I studied abroad in Italy, it was well known that many young adults lived at home with their parents until they were 26 years old, or older. Graduates returned home after finishing school to start their careers and save money for their own place. Real estate is expensive in Milan so it makes sense. When I studied abroad in Argentina, I noticed the same thing. Most young adults still lived at home, regardless of their job and employment situations. Even though American cities have high costs of living, the standards are set in place and rigidly upheld. Leave home or you failed. This needs to change.
Why not give your kid a leg up? And for the young adult reading this, why not utilize the housing stability your parents have to get a leg up? Family sticks together. Family helps family. Families live together. It’s not an absurd idea. If, while a young adult is starting their career, they decide to live at home for a few years and invest the rest, they can be that much closer to doubling their money, retiring early, and becoming financially independent. Let your young adult know they are always welcome at home. If they are open to staying at home to jumpstart their investment portfolio, help them create a FIRE plan, or at least a savings plan. Revisit the plan every couple of months. These conversations may start your young adult’s FIRE path, or it may not. Like all good parents, at least you tried.