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HSFPP Weekly Update # 162—Should You Pay Rent to Your Parents?

Message from Flashman: Many teens don't realize how expensive it will be for them to have a place of their own. Their ideal apartments, with perhaps two bedrooms and a balcony view of the river, are not cheap. Their parents most likely worked 20 to 30 years to attain the standard of living they are used to, and, when teens first move out on their own, they usually try to maintain the same standard of living or higher. Young people need to know the value of saving and investing and to expect at least a few years of living in cramped apartments, cooking inexpensive meals rather than eating out all the time, and seeking free and inexpensive entertainment where they can find it. They might not believe it now, but, years later, when they have attained a higher standard of living, they will likely have happy memories of their “salad days,” years spent eating cheap and healthy salads and perhaps sharing living arrangements with friends. For most of us, a wealthy lifestyle must be earned by saving and investing, rather than spending everything we earn.

Many recent graduates will live with their parents, at least for a while. So what do young high school and college graduates do with the money they earn while living at home? Do they pay rent to their parents, save money for a security deposit for their first home (see Update # 159), or do they spend their money on nonessential items every chance they get and rely on their parents for free food and rent? Many parents allow their children to do this, which means those young graduates don’t learn the life lessons they could be learning and have to find things out the hard way later on, after they have developed expensive habits that are hard to break. Also, renting an apartment is not always as simple as it might seem. This update could be used by math or business teachers, as it involves some math and aspects of contract law that are relevant to anyone renting an apartment.

 

Note to Educators:

Are you interested in increasing your financial knowledge to improve your teaching of the HSFPP? If so, you might want to take my summer course, FAM 759: Special Advanced Topics in Family Studies: Financial Education for Teachers.

If you are a teacher and you have had a student teacher from the University of Kentucky in your classroom, you should qualify for free tuition. County Extension agents also qualify for free tuition at UK. The course will be taught from June 8 – August 3, Tuesdays and Thursdays, 5:00 – 7:30 pm, here on the UK campus, and will be available by teleconference at remote sites around the state.

Teleconference sites for this course (with course section) will be:

220 Lexington
221 Ashland
222 Elizabethtown
223 Jefferson County
224 Madisonville
225 Northern Kentucky
226 Hazard Community College (Not via Internet, as stated in course catalog)

Past students have found this course very valuable in their teaching and in their own lives. If you think you might want to take this course, call Dr. Flashman at (859) 257-7758 or e-mail him at rflashma@uky.edu, to discuss the course. Also, if you can suggest additional sites, we might be able to add them; but we will need to know in advance.

 

Website Pick of the Week:

http://www.kiplinger.com/columns/kids/archive.html

Janet Bodnar, Kiplinger's columnist for kids and teenagers, has a Web site, Money Smart Kids. Topics include credit card debt, allowances, and the value of money. Those who are new to our weekly updates and Web site can find a link to her series of Kiplinger's articles on our Web site under HSFPP Unit Lesson Links, Unit 4, Links for Teachers.

 

Suggested Activity for Teachers:

Pass out this week's article In the New$.... I have included Discussion Questions along with a related Take-Home Activity on how much students need to earn before they can rent the apartment they want. The following equations should be used to find the amount of take-home pay they will need to rent the apartment with or without utilities.

Equations:

For rent without utilities: rent divided by .3 = take-home income needed to rent place.
Example: $650 rent / .3 = $2166.67 monthly take-home income needed.

For rent including free utilities: rent divided by .4 = take-home income needed to rent.
Example: $650 rent / .4 = $1625 take-home income needed.

 

In the New$.... Should You Pay Rent to Your Parents?

By Chris Hart, 2006 Graduate in Telecommunications, University of Kentucky

Is it unreasonable of your parents to expect you to pay rent if you do not plan to continue your education beyond high school or you have just returned home after graduating from college? And are you thoughtless or clueless if you do not offer your parents rent money to live at home?

If you were not able to live with your parents, what would it cost to rent your own apartment? Look over the apartment-for-rent ads in your town to find out the average rent for a one-bedroom apartment (for example, $560 per month). Based on your take-home pay, could you afford the average rent in your town?

First of all, your rent should not consume more than 30 percent of your take-home pay (or 40 percent if you include utilities). This is a good rule of thumb when determining how much you can afford to pay in rent to your parents.

To rent an apartment, you'll also need cash for a security deposit (usually the equivalent of one or two months' rent) and an extra $20 or $30 if your prospective landlord orders a credit check. Rental insurance costs about $150 a year for $15,000 worth of coverage.

Also consider the other costs of living on your own: you will have to pay utility bills (electricity, water, etc.) and buy groceries. Most young people living on their own can’t afford to eat out as much as they would like and have to learn to cook for themselves. Even so, food turns out to be a very big item in anybody’s budget.

As you can see, having a place of your own can be costly. Having just graduated from college, I now have the choice of living with my parents in Maryland to save money or sharing rent with the friends I live with in Lexington. Both are relatively cheap. Living with my parents would be less expensive, but all my friends are in Lexington and I already have a summer job there. Sharing costs such as rent and cable/Internet with your friends can enable you to live on your own cheaply. With my shared living arrangements, I currently pay $200 a month in rent and about $10 for digital cable and high speed Internet access. Yes, I could have an apartment of my own, but for now I need to begin saving for my emergency fund so that, if I have unexpected expenses such as car repairs or medical bills, I don’t need to use my credit card. I also need to save money in case one of the permanent jobs that I applied for out of state comes through and I need funds for my first month’s rent and deposit for utilities if I can’t find roommates to sublease from. Fortunately, sharing a house with friends is not only cheap, but fun.

 

Discussion questions:

1.) What do you think an apartment would cost in your town or city?

 

2.) What are the benefits of living with your parents for at least a year or two after high school or college?

 

Take-Home Assignment

Look up apartment rents using the Internet, newspaper ads, apartment guides, etc. 

1a.) Cost of apartment $____________ you selected.

Does cost include utilities? Yes___ No___

 

1b.) Amount of monthly take-home pay $_______ you need to live in your selected apartment or home.

Show the equations to calculate how much money you would need to make per month to rent the apartments you found in ads and listings.

 

2a.) Do you think you should have to pay your parents rent if you live with them after graduating from high school or college? Yes___ No___ Explain why:

 

2b.) How much rent should you have to pay your parents? $_______. How did you arrive at this amount?

 

3. Should you have to pay your parents for things like food, laundry, rent, and utilities if you continue living with them after graduation? Yes___ No___ Explain why:

What is the market value of each of these?

 

4.) If your parents won't accept rent from you after you graduate, should they have some say in what you do with the money you earn from working (such as saving money for a down-payment on a house or putting money in a retirement account)?

Yes___ No___ Explain why:

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of the HSFPP weekly financial updates and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP and the weekly updates meet Kentucky core concepts. The Web site and weekly updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.