Why charging adult children rent is vital for their financial independence and parent wellbeing

The idea of charging your adult children rent might seem harsh, but experts suggest that failing to do so could create significant financial strain for both parents and offspring in the long run.

With the housing market increasingly out of reach for young adults and private rentals often unaffordable amidst a rising cost of living, supporting grown-up children at home can become a substantial burden, even for willing parents.

Indeed, a recent study by Octopus Money revealed that nearly two-thirds (59 per cent) of parents aged 45-65 experience greater financial stress in midlife compared to their twenties, largely due to supporting their adult children.

A staggering 92 per cent provide such support, with 17 per cent believing their child may never achieve full financial independence. This pressure has led 8% of parents to delay their own financial goals, and 7 per cent have even postponed retirement plans.

“Parents, ideally, would love it if their children were financially independent, but really, that’s not the case anymore,” explains Harriet Davis, a financial planner at Smith & Pinching. “It’s not an assumption that they will be financially independent and move out from the age of 18 or 21, as we might have seen previously.”

While it can initially feel awkward, requiring adult children to contribute financially, even when living at home, serves as a crucial life lesson. “It’s one of our largest outgoings in adult life; rent, mortgage, those responsibilities are something we are always going to face,” Davis notes.

Allowing children to live rent-free risks delaying their independence and fostering a mindset that “This is an easy ride, so why would I ever go elsewhere?” By normalising these adult responsibilities, paying rent at home prepares them for the financial realities of independent living.

“It’s about preparing them for real life and keeping it fair,” Davis adds, stressing the importance of a financially sensible arrangement for all parties. “You don’t want parents being resentful that a child is living at home and maybe increasing their costs. And you also don’t want that child to be resentful that a parent is charging them a high rent or a rent they don’t understand either.”

The decision to charge rent should align with the child having a reliable, regular income stream. Rather than simply announcing a figure, Davis recommends initiating a broader conversation. “What stage of life are your children in? Are they just turning 18? Are they going into full-time work, or part-time? The job market is hugely challenging for young people at the moment, so what is their income? Would they like to be moving out? What are their plans? How long are they planning on staying? Is their partner moving in too? You can use that to guide the conversation of how much rent [they ought to pay],” she advises.

While a guideline of 25 per cent of the child’s net income is often suggested, this should be flexible to ensure it doesn’t unduly restrict their financial freedom.

Parents should also consider the actual increase in household running costs. Davis suggests explaining: “‘This is your share. If we were living at home on our own, this is how much the bills would be. Now that you’re moving back in we anticipate our costs to increase by X amount. This needs to be your contribution.’” Discussions should also cover specific expenses like food bills, clarifying whether the rent includes groceries or if the child will manage their own shopping.

Crucially, the aim should not be to profit from your child. “You would ideally want the rent they would be paying at home to be less than they would [for a private rental],” Davis states. “Your children aren’t moving home or staying at home for you to cover your own mortgage or something to that effect. You want the aim to be to make your child financially independent long term, and so your child can learn how paying rent works and real-life responsibilities, rather than just living at home with Mum and Dad.”

For parents who are financially comfortable and don’t strictly need the rental income, charging rent can still be beneficial. Davis suggests considering whether that money could eventually be returned to the child. “If you don’t need that rent from the child, but would like to make them pay rent to teach them those life skills, think about whether or not you are able to maybe give that rent back to your child eventually,” she says, perhaps by stashing it in a savings pot for a future house deposit.

Regardless of whether the rent is saved or used, this arrangement provides an invaluable opportunity to discuss broader savings and spending goals with your child. “Talk about your child’s general saving and spending goals,” Davis encourages.

“What are they doing if you are charging them a below-market rent? Is there a way they can save for themselves, independently, for moving out eventually, so that they are in a more financially stable position later on?” This proactive approach ensures that while living at home, young adults are actively building the financial foundations for their independent future.