When Baby Comes Back

Doug Fox is your basic boomerang kid. One year after graduating from Franklin & Marshall College, he's comfortably ensconced in what used to be the private nanny wing of his parents' Falls Church, Va., home. They charge no rent and subsidize his cell phone and his car so he can test out life as a private-school teacher and coach earning $28,000 per year. His mother, Marjorie, a financial adviser, wrestles with the money and dependency issues that come with having a young adult in the house, but she's happy that he's there. "If you're financially able to help your child achieve his passion, what better way is there to use your money?" she asks.

The Foxes have a lot of company. As starting salaries slump and housing costs rise, more than half of all college graduates are returning to their childhood bedrooms, according to Experience, Inc., a Boston recruiting firm. More than 1 million American homes housed young adults in 2006, up 28 percent from 2004, according to research firm SRI Business Intelligence. But even mother Fox, who is more generous than many boomerang-hosting parents, doesn't think the tap should be left fully open forever. The living-together interlude can be a great opportunity for parents and kids to get closer, and for those kids to get a solid financial boost in life. But the key word in that sentence is "interlude." Here's how to make the most of that transition.

PUT HEALTH INSURANCE FIRST. Check with your provider to see when it's going to dump your child; usually, it's shortly after graduation. Shop at ehealthinsurance.com for a short-term policy and pay the premiums, if you have to, until she can swing it on her own.

CUT A DEAL. Get all those expectations on the table before the duffel is stashed. Who will pay for what? What are the house rules on noise, mess, sleepovers and substances? Delineate lines of privacy that allow your child to spend his own money without your checking every debit-card transaction, even if you're not charging rent. Agree to a rough deadline or goal (a year, say, or completion of grad school), after which the deal will be renegotiated.

SKIP THE RENT. Practically speaking, few new graduates can afford it, which is why they're back on your couch in the first place. Instead of writing monthly checks, your son or daughter can kick in money for utilities or groceries. Another approach is to assess a nominal amount of rent, and then use it to fund a nest egg that you hand back to Junior when he moves out, suggests Los Angeles therapist and psychology of money expert James Gottfurcht.

UNEMPLOYMENT IS NOT AN OPTION. Even if Junior has to sling burgers while he looks for his dream job, he should pay for his own transportation, cell phone and beers out with the boys. "The best therapy for anybody in the world is a job. It keeps you connected to reality," says Howard Singer, a financial adviser in Amherst, Mass. He's expecting his own boomerang in a few weeks, and plans to give him less than a week before he has to start job hunting.

TAKE TEACHABLE MOMENTS. College grads may have aced their physics and linguistics exams, but most still need help with basic paycheck economics. Have meetings to discuss paycheck deductions like Social Security taxes. Help them decide how much to contribute to their 401(k) plan (as much as possible, especially if they aren't paying rent), and where to invest it. If you don't feel competent to be doling out all the advice, spring for one or two sessions with a financial planner who charges hourly fees.

Whatever you do, don't spend so much on them that you short your own retirement contributions, or someday, you might have to live on their couch. Chances are, it'll be a lot less comfortable than yours.

Boomerang kids can present some financial opportunities.

Dependent status. Claim it for your child if he was 24 or younger and a student this year.

Head-of-household status. Single parents can claim it to save on taxes.