College grad at home -- philosophical (and one tax) questions

[Aristippus]

So my kid, who graduated from college in May, just landed her first real job (yay!). Though we haven't discussed it yet, I suspect she'll opt to live at home; she discussed moving out if she landed a job with a long commute, but this job is quick 7-minute subway ride away.

The question we will soon be facing, then, is what she should do with her income. It feels wrong to ask her to pay rent in her own home (and we certainly don't need her to); similarly, it feels wrong to be charging my own child for food, etc. But at the same time, it doesn't seem right for a working adult to be living scot-free at her parents' place. She's already a child with excellent financial habits (far more so than her parents, actually), so I'm not worried about that. But I have no idea what to ask of her financially now, if anything. Has anyone been through this, either as a parent or a child? Have any suggestions?

In addition, I have a tax question. It's a fair bet that, if she lives at home, we'll be picking up enough of her living costs to justify continuing to claim her as a dependent. It'll be easy to do the math to see whether there's an advantage to claiming her. The question is, is there anything else to factor into that decision (e.g., does being someone's dependent after leaving school mess with her credit rating)? Anyone know?

Thanks in advance, as always.

[bjl584]

I'd think that if she now is working a "real job", then I don't see any problem at all with her helping out with the finances at home if she chooses to keep living there. She will most likely be moving out on her own one day, so she might as well be prepared for it by starting to budget for utilities, rent, and groceries now.

I don't think that being a dependant on taxes has anything to do with one's credit score, but I'm not 100% certain on that.

[disneysteve]

I think part of becoming an adult is taking on the financial responsibility of being an adult. That includes paying for housing, food, insurance, transportation, etc. She needs to know that all of those things aren't free. That's why she got a degree and now, thankfully, has a job.

Does she have any debt to deal with?

I see absolutely nothing wrong with having her contribute to the household expenses. In fact, I'd argue that there is something wrong with not having her contribute. She shouldn't expect a free ride and you shouldn't give her one.

That said, you could choose to park that money in your savings account and when she is set to move out, give her a nice gift to help her get started in her own place.

You should definitely sit down and discuss this. Decide who is responsible for what and what expectations everyone has. It is still your home so you get to make the rules no matter how old or grown up she is. And make sure you aren't sacrificing your own financial well being and retirement savings to keep supporting her. Be sure to discuss a timeline for her getting her own place. It might be 6 months. It might be a year. It probably shouldn't be much longer than that. Make it clear that she is now a gainfully employed adult and you expect her to function as one in short order.

[Joan.of.the.Arch]

I doubt you will be able to claim her as a dependent. Wouldn't the support you give her have to total more than she earns? Even if you do, I don't see how that could affect her credit score. How would credit rating companies know what you told the IRS?

Talk with your daughter about how you will split the bills. If she has no experience in paying bills, it might even be good to actually switch a utility or two over to her name and let her pay them directly. Some utilities do report to credit bureaus, so that could help her credit.

Does she already do adult things for the household like grocery shopping, mowing, car maintenance, meal prep, housework, etc? All that would be part of an adult living with parents in our household.

Keep reminding yourself that she is an adult, not a child. You might have to remind her of that once in a while, too.

[Aristippus]

Interesting initial comments. Sounds like a talk is definitely in our future.

Just to flesh things out a little further: she's a great kid, very mature, helps out a lot around the house. I've no worries about her "stepping up," but I'm less certain of what I myself mean by stepping up. I just can't see charging her rent, but I can see insisting she save the equivalent of what she would pay for rent if she were on her own. I could also see asking for a monthly sum -- probably $300 -- to cover the increase in food and electric costs we experience having her home. And maybe it's time for her to get her own phone plan...

As for the tax stuff, the credit score was a bad example. I was just trying to figure out if there were any ramifications to doing things one way or another. But Joan may be right, and I may not even have teh option; if I recall correctly, the threshold for claiming her as a dependent relative is that I provide more than 50% of her support.

Thanks, all, for engaging this discussion!

[disneysteve]

I just can't see charging her rent, but I can see insisting she save the equivalent of what she would pay for rent if she were on her own.

Make sure she understands the concept of building an emergency fund. What you describe would certainly be a great start. Also, one thing that may be helpful is having her pay the bills. Not pay them with her money but just physically sit down with you and handle paying the bills. Let her learn what costs are involved in running a household, what types of things she needs to be prepared for once she is on her own. Also, if she hasn't already, have her start looking at places to live so she gets an idea of what her own place will cost her. Find out what the monthly rent will be, how much of a security deposit she'll need, what average utility costs are, how much renter's insurance is, etc. Go with her to actually look at some apartments even if she isn't ready to move yet.

[phantom]

I lived with my parents from the time I graduated college till the day I got married (and, of course, before that while I was growing up). They did not charge me rent or ask me to help with bills. I wouldn't have minded had they asked me to, but they decided they would rather I be paying down my student loans and saving up to buy a house than giving them money. I did buy groceries whenever my mom told me what she needed, and I was generally pretty good about helping out around the house. But, my parents really didn't ask much of me since they thought I was being responsible enough.

I spent 5 years living with my parents between finishing school and getting married. In that time, I managed to pay off $18,000 out of $28,000 in student loans and saved up $60,000 for a down payment on a house. I also paid off a $16,000 car loan, which I probably never should have taken, but neither my parents nor I thought that was a bad idea at the time. I was thinking about moving out and had just started looking for a small house to buy when I got engaged and decided to buy a bigger house with my husband instead.

I have always been pretty financially responsible, and I don't think the fact that my parents did not ask for rent made me any less so. I still had to worry about things like my car insurance and my loan payments, so I learned about paying bills, budgeting, and watching my cash flow just fine. I just had more money to work with than I would have had I been paying rent, and I am really grateful for the jump start that gave me.

My parents stopped claiming me as a dependent the year I finished college and started my first "real" job. However, my younger sister has a learning disability that made it very difficult for her to get a job right out of college, so I believe they kept claiming her for the year or so after she finished college when she could only find part time work. I believe my parents drew the line based on whether or not we made enough money to owe taxes ourselves, but I'm not sure if that's the correct way to do it or not.

[sblatner]

You could charge her rent and put it into an account for her to use when she moves out.

Also, in regards to claiming her as a dependent, I seem to remember there is a threshold of how much income a dependent can make and once they cross the threshold, you can no longer claim them. I remember my parents telling me the year I made too much money and they could no longer claim me.

[Aristippus]

You could charge her rent and put it into an account for her to use when she moves out.

Also, in regards to claiming her as a dependent, I seem to remember there is a threshold of how much income a dependent can make and once they cross the threshold, you can no longer claim them. I remember my parents telling me the year I made too much money and they could no longer claim me.

That's true. Last year the threshhold was $37,000. She'll be making just under that, so that won't be an issue (but other things might).

[Joan.of.the.Arch]

Then you'd have to be providing for her with about $37,001 in support. Is she still young enough to qualify as a dependent now that she is not a full time student?

There are FAQ's at the IRS website that are helpful.

[YLTL_Dan]

If she's as responsible as you say she is, I'd just set some guidelines in a quick discussion, such as:

- She's under your roof, she's under your rules
- She's expected to do her fair share around the house
- You're ok with her living with you for free as long as she's taking advantage of the situation by saving money, and not just taking advantage of you

One of the best decisions my parents ever made was to trust me to make the right decision (their guidance was always there, of course) which has given me the confidence to do the same even 15 years later - and to continue to seek and respective their advice.

Just a note, I don't have any kids, but I was raised by parents

[MonkeyMama]

This is just one of those things where it is very individual. Depends if you mind her living with you and if she is being responsible.

My parents were the type to charge me rent when I was 19 - my husband's parents would be happy if he was still living at home rent-free (age 35). Financially we turned out almost identical. Culturally, a lot of my friends live with extended family their whole lives.

At the least, to be fair to you, you'd probably want to make sure she is covering her fair share of utilities, food, etc. While this arrangement might be fine for both your family, you just don't want to be put in a position where you are literally supporting an adult child - where her presence is setting you back financially. Rent kind of seems the least of it since what you are paying for a roof over your head shouldn't change just because she chooses to live with you. Paying rent might be a better incentive if you don't want her to live with you forever.

[MonkeyMama]

And maybe it's time for her to get her own phone plan...

I'd at least make sure she is paying for her part of the phone plan. It's pretty common for extended families to share phone plans to keep the expense down, so not sure I'd rush to completely kick her off.

[Petunia 100]

That's true. Last year the threshhold was $37,000. She'll be making just under that, so that won't be an issue (but other things might).

No, the threshold is one personal exemption, substantially less than 37k. For 2011, it was $3,800.

[disneysteve]

Rent kind of seems the least of it since what you are paying for a roof over your head shouldn't change just because she chooses to live with you.

That makes sense financially. You're mortgage payment doesn't go up because she's there, but your utilities and food bill certainly do.

I'd at least make sure she is paying for her part of the phone plan. It's pretty common for extended families to share phone plans to keep the expense down, so not sure I'd rush to completely kick her off.

I agree. Family plans are very economical. We have 5 people from 3 different households on our plan. It is far, far cheaper than each of us having our own plan. Just have her pay her share of the bill.