The coronavirus pandemic has already led to a recession, and fear of further economic consequences of lockdown is rife.
Young people have found themselves among those most at risk of being the most affected by the financial implications of the pandemic, as most have not yet had a chance to build up any savings or get enough, if any, careers experience for a foothold in their preferred field.
This could lead to young people being financially dependant on their parents and guardians for even longer.
Elin Helander, Chief Scientific Officer at the financial wellbeing app Dreams, warns that this lingering ‘financial virginity’ could have a knock-on impact in other areas of their financial lives.
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She says: ‘Research gives us some indicators that young people who live with their parents for a longer period of time might be worse off when it comes to their long-term financial success.
‘In other words, they may not be learning important financial skills that come with managing household bills, finances, food budgets and other such things. In these circumstances, they are retaining their “financial virginity.”
‘One 2019 research report from the Urban Institute showed that those who lived with their parents between the ages of 25 and 34 were significantly less likely to be homeowners 10 years later.
‘On top of this, the researchers couldn’t see any evidence that these young adults, when they eventually bought a home, purchased a more expensive home or used a smaller mortgage, thanks to the savings they’d potentially been able to build up from living with their parents.
‘This study suggests it is beneficial (financially) for young adults to move out from their parents’ homes, sooner rather than later, and that it’s important to lose one’s “financial virginity” as it will benefit a person’s overall financial wellbeing throughout their life.’
Before you start feeling bad, it’s not been remotely uncommon for people to have moved back in with their parents since lockdown, and doing so is no guarantee that you’ll be financially adrift.
Elin says: ‘According to recent analysis of government data by the real-estate website Zillow (2020) about 2.9 million adults moved in with a parent or grandparent during the months of March, April, and May. Statistics that have clear connections to the Covid-19 outbreak.
‘Regarding whether young people living at home for an extended period of time will lose their ability to acquire budgeting skills (or other financial skills), we haven’t seen any clear proof of that. We believe that this depends heavily on how much time and effort their parents put in on educating their children in financial management, and if they create a home environment for their children where they are required to think and behave in a financially responsible way.
She adds: ‘Environment plays a crucial part in shaping how a young person’s financial wellbeing develops, no matter if a young adult lives at home with their parents or lives on their own – if we are surrounded by poor financial decisions, we are bound to regard them as normal.
‘There could also potentially be a danger that adult children, after moving back home with their parents, will fall back into their old roles and become more dependent on their parents. The same goes for their parents, that they might become too undemanding and overly supportive of their children.’
She also says: ‘Living at home – especially during periods of unemployment – can be the crucial action young people need to take to get back on track financially. Living with their parents can help them to save money – even if it’s just a small amount – towards their financial goals, which would likely not have been possible if they lived in their own household.
‘As long as parents educate their children and support them to be financially self-confident, living at home is not a problem. It is when poor financial decisions are left uncorrected or are supported by parental bail-outs and provisions, that living at home can become a problem.’
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