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HSFPP Weekly Update #68—Rental Costs / Should Parents Charge Rent?

Message from Flashman: Teenagers often don't realize how expensive it will be for them to have a place of their own. Their ideal apartments with 2 bedrooms and a balcony view of the river are not cheap. Their parents most likely have worked 20 to 30 years to attain the standard of living they are used to, and when they first move out on their own, teenagers usually try to maintain the same standard of living or higher.

Many recent graduates will live with their parents, at least for a while. What do 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 apartment, or do they spend their money on non-essential items every chance they get and rely on their parents for free food and rent? Also, when it comes to renting an apartment, things often are not as easy as they seem. We used two articles from Kiplinger's website for the In the New$ section of this update.

This update could be used by math or business teachers, as it involves some math and some aspects of contract laws when renting an apartment.

Website Pick of the Week:

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

This is Janet Bodnar's website. She is Kiplinger's columnist for kids and teenagers. Besides her article on parents charging their kids rent (one of this week's articles In the New$ ), her recent topics include credit card debt, allowances, and the value of money. For those who are new to our weekly updates and website, a link to her series of Kiplinger's articles is on our website 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 a Take-Home Activity with related Discussion Questions on how much students should earn to 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 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$ .... “Charging Kids Rent,” by Janet Bodnar, September 18, 2003

“My husband and I work and live in the New York City area. We have just turned 50 and have two twentysomething children at home, with another living on his own.

“Our 23-year-old son graduated from a military college in 2002. Since then he has been working as an underwriting trainee in New York City and living at home. He doesn't have college loans, and we gave him a decent car when he was a senior in college.

“Our expenses are very high, so we asked him to pay $200 per month as a contribution toward room and board. He claims we are being unreasonable. We are frustrated. Are we being unreasonable? What recourse do we have?”

“Unreasonable? You want to charge your 23-year-old employed son $200 a month for rent in the New York City area, and he thinks that's unreasonable? Not only are you being reasonable, you're being downright generous—and you can tell him I said so.

“Let's be charitable and assume your son is not being thoughtless, just clueless. Because he's always lived at home, he honestly may not be aware of how much he'd have to pay to rent a place of his own, even with roommates. (My college-student son is paying $280 a month to rent a house in Philadelphia with eight guys—and that doesn't include utilities or a Mom-in-residence to cook an occasional meal.)

“Tell your son that your expenses are high and that you need him to help cover the costs. Then get out the apartment-for-rent ads and show him what he'd be facing in the real world. Maybe he could learn the facts of life from your son who's living on his own.

“Or maybe he could even move in with his brother. Your last resort is to tell him he can either pay you $200 in rent or pay some other landlord on the open market. Just be prepared to follow through and show him the door.”

In the New$.... “ Renting An Apartment,” By Janet Bodnar August 28, 2003

“This week's column is the next installment in a series on what 20-somethings need to know about personal finance—in this case, what they need to know about renting an apartment and how to stay on good terms with the landlord.

“Rents in local markets vary considerably. In San Francisco, a two-bedroom apartment could set you back about $2,100 a month, but the same digs might cost only about $700 in St. Louis.

“Whatever you pay, figure that rent shouldn't consume more than 30% of your take-home pay (40% if you include utilities). 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 $250 a year for $30,000 worth of coverage.

“Taking a roommate may reduce expenses, but choose carefully. Even when you both sign the lease, you'll be on the hook for the whole amount if your roomie turns out to be a deadbeat.

“With so much at stake, don't be timid about protecting your interests.

• Guard your security deposit. More than half the states require landlords to pay interest on security deposits. Landlords must return your deposit in full if you leave your place in good shape. Photograph or videotape the apartment before moving in, and tell your landlord about any damage. Take more pictures just before you move out.
  
• Get a written lease. If necessary, write your own lease in a letter to your landlord, covering key points such as whether utilities are included and when the rent is due. Keep a copy and send your landlord the signed original by certified mail.
  
• Stand up to your landlord. He or she must provide you with a "habitable" place to live. If you have a serious problem—a leaky roof or a broken lock, for example—you can legally withhold rent until repairs are made. But do everything by the book to avoid eviction. Some states, for example, require that you deposit withheld rent in an escrow account.
  
• Leave on good terms. Poor or unsafe living conditions are grounds for breaking a lease. But if you do so for another reason—say, because you lose your job—you're still responsible for rent until a new tenant is found. Whether breaking a lease or leaving at the end of it, you should notify the landlord in writing.”

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

Take-Home Assignment and Discussion Questions for Next Class:

Look up rents for apartments using the Internet, newspaper ads, apartment guides, etc. In the second article, author Janet Bodnar says rent without utilities should not cost more than 30% of your take-home pay, and rent with utilities should not be more than 40% of your take-home pay.

1a. Cost of apartment $____________ you selected to live in.

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 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, and utilities, as well as rent, if you continue living with them after graduation? 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? (Like saving money for a down-payment on a house or putting money in a retirement account.)Yes____ No____ Explain why:

5. Before reading the second article, how much knowledge did you think you needed in order to rent an apartment?

6. Before reading the second article, what were your impressions about how much an apartment would cost?

7. Have these two articles made you think twice about the benefits of living with your parents for at least a year or two after high school or college? Yes____ No___ Explain why:

Kentucky High School Financial Planning Program

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

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.