More young people are choosing to live at home with their parents – but many of them are using what they save on rent to splurge on designer handbags and expensive jewellery.
Analysts at Morgan Stanley say these young adults have more room in their budgets for discretionary spending and are helping the luxury goods industry boom.
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Personal finance author and radio host Dave Ramsey criticized the trend on The Ramsey Show, calling it a “train wreck.”
“So let me get this straight. You live in your mom’s basement, but you have a Coach purse,” says Ramsey. “Here’s what’s going to happen — you can’t avoid life, it’s coming for your butt.” Mom can’t protect you.”
Whether you’re an adult living with your parents or have children who haven’t left the nest, these simple rules can help if the family home starts to feel a little crowded.
Why do young people still live at home?
Nearly half of all young adults ages 18 to 29 live with their parents — the highest level since 1940 — according to the U.S. Census Bureau.
Multigenerational living has been on the rise for the past five decades, although the economic fallout from the COVID-19 pandemic has put the spotlight on the trend, with many boomeranging adults at home.
While the hosts of The Ramsey Show claim that these grown children are being “enabled” and “coddled”, many simply cannot afford to live on their own in the current economic climate.
Rising rents and high mortgage rates have made moving out much more difficult. And high inflation affects everything from gas to groceries, while rising interest rates drive up borrowing costs.
The Morgan Stanley report also says other sociological factors, such as entering higher education and marrying later in life, may also be driving them.
What should you do with the extra money?
Living with your parents has many practical benefits, but it’s also important to use this time to achieve your goals, such as becoming financially independent.
“The problem is you’re in debt, you’re not making enough money and you’re not doing enough to go out and change it.” Mom and Dad can’t do this for you,” says The Ramsey Show co-host Jade Warshaw.
Here are three ways to focus on your financial health instead of splurging on luxury items.
1. Don’t buy now and pay later
The rise of buy-now-pay-later (BNPL) options at the checkout has made it easier for younger consumers to buy expensive luxury goods, Quartz notes. But if not used responsibly, the financing feature can drag customers deeper into debt.
If you don’t have enough money in the bank to finance a Prada handbag right now, don’t rely on BNPL to help cover the cost in installments. There are many risks to be aware of.
While some BNPL plans come with zero interest or late fees – making them a popular alternative to taking on credit card debt – the costs could start to add up if you miss a payment.
Consider working on a plan to erase existing debt (instead of adding to it), such as paying bills in full and on time or consolidating multiple loans into one if they’re difficult to keep track of.
More details: Here’s How Much Money The Average Middle Class American Household Makes – How Do You Agree?
2. Stop pulling Shein
Although it can be tempting to indulge in cheap clothes, especially imitations of expensive brands, try not to get carried away.
Fast fashion retailers like Shein and Boohoo may offer cute $6 dresses that seem like a steal — but adding more unnecessary pieces to your wardrobe is bad for both the environment and your wallet.
You may have more room for discretionary spending, but your money could be better spent elsewhere, such as investing in the stock market, even if it’s just a few dollars at a time.
3. Start saving now (to eventually move out)
While you’re saving on rent by living with your parents, make sure you’re actually putting away some extra cash to eventually leave the nest.
If you’re planning to buy instead of renting when you move out, experts generally recommend saving 20% of the home’s purchase price for a down payment, but that can be a challenge for many first-timers, especially as home prices continue to rise.
You’ll also need to have money to support your monthly mortgage payments, utilities and other essential day-to-day expenses. And don’t forget to put some aside for emergencies, so when your car breaks down or your pet gets sick, you don’t have to call mom and dad for help.
Dave Ramsey isn’t the only expert trying to point out how to put together your financial deed.
Personal finance icon Suze Orman recently imparted some sage savings wisdom during a recent chat with Moneyvise.
“Listen, $10 is better than nothing. $50 is better than $10, $100 is better than $50. Because really, sometimes $200, $400 can make a big difference in your situation.”
WATCH NOW: Suze Orman tells the story of what happens when you can’t cover your next financial crisis
Do your research, determine how much house you can afford in your chosen location, and create a savings plan that you can stick to.
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This article provides information only and should not be construed as advice. Provided without any warranty.