Helping adult children financially doesn’t have to hinder their path to independence

The conventional advice for parents is to sever the financial relationship with their young adult children as soon as they can.

We’re told to push them out to fend for themselves financially or risk raising irresponsible adults — slothfully living in their childhood bedroom or the basement — incapable of managing their money.

But that advice is outdated amid the reality of an economy still struggling from the fallout of the pandemic. Helping adult children doesn’t have to hinder their path to independence.

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Our kids now face monthly rent payments that can be more than 50 percent of their take-home pay. Inflation is causing food prices to surge. Energy costs are up. If your offspring need to purchase a new or used car, they face exorbitant prices.

I’ve long advocated that parents encourage young adults to live at home as long as possible, especially if they need to pay off massive student loan debt. Even if they don’t have debt, a few years of being rent-free can help them tremendously when they finally launch. So all three of my 20-something kids, having explored the cost of renting in the DC area, are happily living at home.

It’s already common and acceptable for young adults to stay on the family cellphone plan. Here’s another way to help your young adult children that can have a lasting impact: Keep them on your health insurance plan. If you can afford to continue carrying your child on your policy even after they get their first full-time job, it will give them several years of savings that could be used to pay down debt or boost retirement contributions.

With the passage of the Affordable Care Act, also known as Obamacare, came a requirement that plans that offer dependent child coverage make the coverage available until a child is 26. You may not realize that they can stay on the plan even if they work for a company that provides health coverage.

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The coverage is mandated even if they are married or have children. Generally, they can stay on the plan even if they aren’t living at home. They also don’t have to be claimed as a tax dependent to keep the coverage.

Sit down with your child and review the cost of getting their own coverage through their employer, because the financial case to continue carrying them until 26 is compelling if you can afford it.

Even when employees have coverage, the combined cost of premiums, deductibles and other out-of-pocket expenses can be considerable.

Annual premiums for employer-sponsored family health insurance were $22.221 for families and $7,739 for single coverage last year, according to the 2021 Employer Health Benefits Survey by the Kaiser Family Foundation.

Most covered workers contribute toward the cost of their coverage. On average, workers contribute 17 percent of the premium for single coverage and 28 percent for family coverage. The average annual amount contributed by covered workers was $1,299 for single coverage and $5,969 for family coverage.

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The financial burden of deductibles has been increasing steadily. Last year, 85 percent of covered workers had a deductible in their plan, up from 74 percent a decade earlier, the KFF report said.

The smaller the company, the bigger the deductible. Workers at firms with fewer than 200 employees on average face deductibles that are 70 percent higher than those at firms with at least 200 employees ($2,379 vs. $1,397), KFF said.

“While many employers pay a significant portion of health insurance premiums, some workers face relatively high contributions to enroll in coverage,” according to a separate Health System Tracker report by the Peterson Center on Healthcare and KFF. “People with employer coverage often face a deductible, which may require the enrollee to spend thousands of dollars before the plan covers most services.”

Workers in lower-income families with employer coverage spend a greater share of their income on health costs than those with higher incomes, the report found.

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The key word in my argument is affordability. It might not be cheaper to stay on a parent’s plan. For us, the cost wouldn’t have changed since, as a couple, we still need a family plan.

This may not be doable if you’ve been looking forward to getting rid of dependent care coverage because you need to save money. It may also be the case that your child has moved to an area where it doesn’t make sense for them to stay on your plan if they have to see medical professionals outside your coverage network.

If you’re struggling, your child could share the expenses, helping with deductibles or co-pays. It doesn’t have to be an all-or-nothing agreement.

Soon enough, they will age out and be on their own. But having gap years between you carrying them and their paying all of their health-care costs can make the difference in them amassing a significant amount of money in an emergency fund and retirement account.

At the start of an adult child’s full-time employment, allowing them to stay on your health plan gives them room to catch their financial breath.