Daddy's Little Money Pits

Between rent, cellphones and health insurance, families are finding it harder than ever to stop supporting their adult children financially..ArticleComments (64)more in Personal

By KAREN BLUMENTHAL
For years, Pat Bearce had a message for his daughter Andrea: After her college graduation, she would be on her own financially.

It has been three years, and she isn't quite there yet.


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Andrea Bearce
.After studying broadcast journalism at Texas Christian University, Andrea decided to pursue a career as a chef, choosing a pricey culinary school in New York City. The restaurant jobs she landed didn't come with health coverage, so, in addition to guaranteeing her apartment lease in Manhattan, her parents covered her health-care costs for a couple of years. They paid her monthly cellphone bill, too. And she still has a jointly held credit card with her mother, Catherine.

"It's pretty hard to get them launched," says Mr. Bearce, a pilot at Boeing Co. in Seattle, who now says he never actually intended to enforce the deadline. "The real bottom line is that when they're done with school, they're not really done."

The latest class of college graduates is entering the real world at a time when parents are finding it more difficult than ever to get their adult children off the family dole—and may be growing increasingly stretched themselves. For decades, the gap between the student years and adulthood has been widening, and the sour economy has only accelerated that trend.

The unemployment rate for 20- to 24-year-olds stands at about 15%, compared with 9.7% for the whole work force. Then there is the worsening indebtedness problem: About two-thirds of 2008 graduates had student debt, and that debt averaged $23,200—up from $18,650 in 2004—according to the Project on Student Debt, a nonprofit group.

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Julia Robinson for The Wall Street Journal

Ms. Bearce still shares a credit card account with her mother—but she uses it only to pay for emergencies.
.But the financial ties go beyond job issues and the now-familiar decision to move back home for a while. The Obama administration's two biggest pieces of consumer legislation—the new health-care law and the Credit Card Act—may keep parents directly involved in the upkeep of their adult children for far longer than they may have expected. And in the day-to-day world, family cellphone plans are so common and economical that adult children may remain on the plan until they form families of their own.

One new survey of 1,000 parents of 23- to 28-year-olds sponsored by Charles Schwab Corp. found that 41% are providing at least some financial support to an adult child. The parents cited college debt and employment issues as the main reasons.

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After college, Andrea studied at the French Culinary Institute in New York, where her parents helped support her.
."I've always wanted to be financially separate," says Andrea Bearce, who now lives in Austin, Texas, and plans to get married in September. "But the paths I've chosen to take—journalism and cooking—have not lent themselves to financial stability."

Here are some of the areas that pose the biggest challenges:


• Health insurance. In an effort to reduce the high percentage of young people without health insurance, the new health-care legislation allows children to remain on their parents' plans until they turn 26. Previously, plans could kick them off as soon as they left school.

Although the law doesn't take effect until September, many insurers, including Aetna Inc., Cigna Corp., Humana Inc. and WellPoint Inc., have agreed to allow this year's graduates to remain on their parents' health plans. That means, of course, that Mom or Dad will be responsible for the bill, though the actual costs can vary widely, depending on the plan.

If the adult child has a pre-existing medical condition or requires regular medication, the option may be worth every penny. But there are other choices: Short-term plans can be relatively inexpensive and fill a gap of up to a year between school and a job, though they don't cover pre-existing conditions. Individual policies, which cost an average of about $1,400 a year for someone under 24 years old, actually could be cheaper than keeping a healthy child on a parent's plan, though it will probably have a much higher deductible and offer less-comprehensive coverage.

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Before Andrea moved to Austin, Texas, her parents guaranteed her apartment lease in New York.
.Since keeping kids insured is a big worry for many parents, the option for adult children to remain on the plan may be a relief. Mr. Bearce says his family would have welcomed the chance to keep Andrea on his plan rather than pay for an expensive individual policy that didn't cover very much.

• Credit cards. There are plenty of good reasons for helping young people build a credit record. For starters, they will need one to get a lease, secure a loan for a house or car and, increasingly, to land a job. But the Credit Card Act, which was enacted a year ago, is making it harder for them to get started. The new rules require parents to cosign on a credit card with a young adult under 21, unless the child can show enough income to qualify independently.

The law was aimed at helping college students learn to manage credit by engaging parents in the process, but it may have unintended consequences. For instance, to protect their own credit record, parents have to pay the bill if the student doesn't. And the card can't be switched over to the student at age 21, which wasn't an issue when younger students could qualify without a parent.

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After college, Andrea stayed on her parents' cellphone plan for a couple of years, as many recent graduates do. She now shares a plan with her fiancé.
.Instead, for parents to turn over full responsibility to adult children, the young adults must apply for their own card and the cosigned card must be canceled. This could ding the child's credit score for up to a year by shortening his already short credit history and requiring a credit inquiry for the new card.

Students under 21 should try applying for a so-called college credit card, listing their summer or school-year income. Because the credit limits are typically less than $1,000, a student with as little as $3,000 in annual income could qualify.

Parents also can add a child as an authorized user to one of their accounts and require the youngster to repay them for charges. Being an authorized user can help a student get a FICO score, which lenders use to determine borrowing eligibility.

If you do end up cosigning, you should encourage your children to get their own cards once they turn 21. You can simply cut up the joint card when you are ready; eventually, the account will be closed for lack of use.

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Andrea Bearce

Pat and Catherine Bearce have subsidized their daughter Andrea's post-collegiate life.
.• Cellphones. More than two-thirds of consumer contract plans are family plans, up from less than 50% at the end of 2005, according to Nielsen Co. Among the benefits: sharing a bucket of minutes, flat charges for unlimited texting and the potential to add another user for as little as $5 or $10 a month. The savings can add up for a family of four. According to a new T-Mobile survey, 73% of households with both family plans and children 22 or older still have an adult child on their plans.

At T-Mobile, for instance, an individual plan with 500 minutes and unlimited texting costs $49.99 a month with a two-year contract. A family plan with 1,500 minutes and unlimited texting costs $99.99 a month for two lines, or about the same per person for more minutes. Adding two additional lines costs $10 a month, and cuts the price per person to $27.50.

"We recommend not just blood relatives, but friends, neighbors and even dorm-mates share a plan," says Peter Pham, CEO of BillShrink.com, a price-comparison website.

The Rules of the Game
The new health-care bill will allow young adults to stay on their parents' plan until they turn 26. Here's what you need to know:

The law goes into effect Sept. 23. Some insurers may not offer coverage until their next plan year, which could be in 2011.
Many big insurers, including Aetna, Cigna, Humana and WellPoint, have said they will allow recent graduates to stay on their parents' plans.
If your company self-insures and uses a big insurer to administer the plan, it may not offer coverage yet. To be sure your child is covered, call and ask.
If a parent's plan isn't an option, short-term plans can be relatively inexpensive, though they won't cover pre-existing conditions. Individual policies will cost more and may carry high deductibles and offer limited coverage.
A child who has been on a parent's plan but is no longer a dependent under the plan's rules is entitled to up to 36 months of continued coverage under Cobra, but must pay the full premium and a small administrative fee. You must notify the insurer within 60 days of your termination to qualify.
Encourage your child to secure some coverage, even if it's just for catastrophes. A car accident or an extended illness could be financially crippling to someone just starting out.
.Given the relatively small additional cost, some parents happily keep their kids on their plans for years after college, especially if it prompts them to call home regularly—though some also expect to be reimbursed. Typically, young adults cut the cord when they become a couple or an employer picks up the bill.

Before children make the split, there is another consideration: To qualify for a two-year contract—and the best phone prices—they will need to have an established credit record.

• Bank accounts. Depending on the state, parents may have to be joint owners on checking or savings accounts until their kids are 18, which allows them to see any transactions. Dropping off the account usually requires little more than signatures.

Still, it has become easier for parents to link their accounts to children's accounts indefinitely to take advantage of perks, such as waived monthly fees, offered to bigger depositors. At Wells Fargo & Co., for example, parents can see the balance in an adult child's linked account, but not the transactions, says Erin Constantine, a senior vice president. It is up to the family to decide when to "unlink."

• Housing. If your graduate hasn't had a credit card or doesn't have a credit record, you may be asked to guarantee a lease—especially in areas where housing is expensive.

In Manhattan, for example, if the child doesn't have enough income to satisfy landlords, parents often have to show that they have the financial wherewithal to cover the bill if their child can't. Guaranteeing the lease may beat having the youngsters move back home, as a growing number of children have been doing since the recession began.

Setting deadlines for your children can help them become independent sooner. Bill Goad used to think he would pay for four years of college for his two sons and no more. Then he agreed to cover an extra summer term for his older son, Billy, and pay for a summer program for his younger son, Bryan, a recent Texas A&M graduate, who would like to go into anthropology.

The Dallas medical-equipment salesman grew impatient, however, when an internship Billy took after graduation seemed to have no end. Eventually, he set deadlines, making his son responsible for his cellphone bill on a certain date and his car insurance on another. Within a few months, Billy had found a job and moved out.

Mr. Goad says he is willing to let his younger son return home for a time, too, to pursue his chosen field, as long as he is headed toward independence. "I don't have a problem with that as long as there's a plan in place," he says.

Write to Karen Blumenthal at karen.blumenthal@wsj.com