Reconsidering the Crowded Nest: Wealth Accumulation of Young Adults before and after Leaving Parental Home
*Names in bold indicate Presenter
Parent-child coresidence affects wealth accumulation in different ways. Young adults who continue to live in their parent’s home save on necessities such as housing and food. They can pay off student loans quicker, and do not need to use unsecured credit for living expenses when their income is low. On the contrary, living with parents causes delays in home purchases and works as insurance against labor market risks. Lower home equity and a decline in precautionary motives would have negative effects on asset accumulation and saving rates.
This study presents an explanatory analysis of parent-child coresidence and the wealth accumulation of young adults using data from the National Longitudinal Survey of Youth 1997 (NLSY97). We conduct our empirical analysis in three steps. First, we investigate the assets and debt holdings of young adults who never left parental home (failure-to-launch), those who started living independently and those who moved out of the parental home but returned (boomerang). Compared to boomerang children, young adults who never left parental home have higher net worth because of lower mortgage and non-housing debt. Young adults who live independently between the ages of 20 and 25 also have higher net worth than boomerang children because they are more likely to own their primary residence and accumulate home equity. We did not find any significant difference in educational loans between those who never left parental home and boomerang children. Second, we investigate change in assets and debt between the ages of 20 and 25 by the coresidence status. Young adults who never left parental home experience an increase in financial assets from age 20 to 25 compared to boomerang children while college graduates who left home between ages 23 to 25 have higher non-housing debt. Finally, we examine the factors that influence the coresidence status of young adults. Educational attainment, marital status and race are more strongly correlated with coresidential decisions than young adults’ earnings and working status.