More young adults are opting to live at home with their parents, but many of them are using their rent savings to spend on designer handbags and expensive jewelry instead.
Morgan Stanley analysts say these young adults have more room in their budgets for discretionary spending, helping to fuel a boom in the luxury goods industry.
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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,” Ramsey says. “Here’s the thing – you can’t run away from life, it’s coming for you. Mother can’t protect you.”
Whether you’re an adult living with your parents or have kids who haven’t left the nest, these simple rules can help when the family home starts to feel a little crowded.
Why do young people still live at home?
Almost half of all young adults between the ages of 18 and 29 live with their parents — the highest level since 1940, according to the U.S. Census Bureau.
Although the economic fallout of the COVID-19 pandemic has put this trend in focus, multigenerational living has been steadily increasing over the past five decades.
Although the hosts of The Ramsey Show claim that these grown children are “acceptable” and “fun”, many cannot survive on their own in today’s economic climate.
Rising rents and high mortgage rates have made moving much more difficult. High inflation affects everything from gas to groceries, while rising interest rates drive up borrowing costs.
The Morgan Stanley report also says they may be influenced by other sociological factors, such as enrolling in higher education and marrying later in life.
What should you do with extra money?
Living with your parents has many practical benefits, but it’s also important to use this time to achieve your goals of becoming financially independent.
“The problem is you have 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 that for you,” says Jade Warshaw, host of The Ramsey Show.
Here are three ways to focus on your financial health instead of splurging on luxury items.
1. Don’t buy now and pay later
Quartz notes that the rise of buy-now-pay-later (BNPL) options at checkout has made it easier for young consumers to buy expensive luxury goods. But if not used responsibly, the financing feature can push buyers further into debt.
If you don’t currently have enough money in the bank to finance a Prada wallet, don’t rely on BNPL to cover the cost in installments. There are many risks to be aware of.
While some BNPL plans come with zero interest or late fees, this makes them a popular alternative to taking on credit card debt – if you miss a payment, the fees can start piling up.
Consider working on a plan to clear (rather than add to) your existing debt, such as paying your bills in full and on time or consolidating multiple loans if they’re difficult to keep track of.
Read more: Here’s How Much Money the Middle-Class American Family Makes – How Do You Save?
2. Stop with Shane’s hauls
While it’s tempting to fall in love with cheap clothes, especially imitations of expensive brands, try not to get carried away.
Fast-fashion retailers like Shein and Boohoo may offer beautiful dresses for $6 that seem like a steal — but adding more junk to your wardrobe is bad for the environment and your wallet.
You may have more room for whatever expenses you want, but even if it’s just a few dollars at a time, your money could be better spent elsewhere, such as investing in the stock market.
3. Start saving now (so you can move later)
While you’re saving on rent by living with your parents, be sure to set aside some spare cash for when you eventually leave the nest.
If you’re planning to buy instead of rent when you move, experts generally recommend saving 20% of the home’s purchase price for a down payment, but that can be difficult for many first-timers, especially as home prices continue to rise.
You should also have money to support your monthly mortgage payments, utilities, and other important day-to-day expenses. And don’t forget to put some aside for emergencies so you don’t have to call mom and dad for help when your car breaks down or your pet gets sick.
Dave Ramsey isn’t the only expert trying to offer advice on getting your financial act together.
Personal finance icon Suze Orman recently imparted some sage savings wisdom during a chat with Moneywise.
“Listen, $10 is better than nothing. $50 is better than $10, $100 is better than $50. Because really, sometimes 200, 400 dollars can change the world in your situation.”
NOW WATCH: Suze Orman warns of what happens when you can’t cover your next financial emergency
Do your research, determine how much home you can afford in your chosen location, and create a savings plan you can stick to.
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This article provides information only and should not be construed as advice. Provided without any warranty.