Economic interdependence is the new normal

IT IS well-documented that the American middle class is shrinking.

The Pew Research Center said recently that after four decades as the nation's economic majority, "the American middle class is now matched in number by those in the economic tiers above and below it."

Not only that, in 2015, 20 percent of adults were in the lowest-income tier, compared with 16 percent in 1971, Pew found.

If you're in the middle or lower tiers, what do you do with this information?

Maybe it's time to embrace a new normal, at least where it concerns your adult children starting out. Consider the message young people get when we say:

*  "As soon as you're 18, you're out of here."

*  "When you graduate from college, you're on your own."

The American model of living on your own so you can learn to be financially independent is just not sustainable for a lot of folks. Does everybody need his or her own home?

I was thinking about this question after getting an email from a reader from Maryland named John. His daughter is a recent college graduate. John said he and his wife are proud of her accomplishments and they enjoy having her "back in the nest." The daughter has a full-time job.

But here's the issue:

"She thinks it's unreasonable that I ask her to share in the household costs by paying $300 a month in rent for her 'basement bachelorette pad,' which also includes meals," John wrote. "She complains that she has no money left after taxes are taken out of her $30,000-a-year paycheck. Am I being unreasonable?"

Before I answered, I asked him four questions:

*  Does your daughter have any student-loan debt?

*  Does she have any consumer debt, such as from a credit card?

*  What are her financial goals? Does she plan on buying a house soon?

*  Do you need the $300?

Whether you charge your young adults rent or ask them to contribute to the household expenses in your shared space depends on their financial situation and goals. If living at home is an option, you just need to make sure your adult child is being helped - and not hindered - in becoming financially independent. Here's what I recommend:

Coming out of college in debt. They should live at home if possible and not be charged rent. They, in turn, should devote most of their net income to paying down their college loans. Monitor the payoff. And, nope, they are not going to be spending much of anything to go out with friends, shop or take vacations. That's the price of the financial breathing room you're giving them.

Coming back home because of other stifling debt. Same as above. And trust but verify. I suggest monthly reports on their progress.

Coming back home to save for a major life goal such as buying a home. Same as above - except they're saving.

Coming back home because they don't earn enough to live on their own. You're roommates now. Come up with a written agreement of what expenses you'll share.

Coming back home but you need financial help. Figure out what your young adult can afford to contribute and still aggressively pay down debt or save for his or her goal.

Coming back home and using their pay to just play. Oh, you better believe they should be kicking in to help with expenses. In John's situation, his 23-year-old daughter does not have any student-loan debt. "We paid as she went over the past five years." However, she has incurred credit-card debt.

"Online shopping is a temptation that she cannot avoid," he said.

The daughter hasn't expressed interest in buying a home just yet. And John said he and his wife could use her financial contribution.

"The $300 a month would help as I lost my job 4 1/2 years ago and have started my own business," he said.

Mostly John said he wants to charge rent to nip a few bad habits in the bud: "She's using her pay for all play."

It is important for young adults to learn to be good money-managers, but it does not have to come at the expense of them spending their 20s setting up a household they can barely afford - even with roommates.

Yes, John, charge your daughter rent. She needs a real-world wakeup call. But she can be independent and learn financial responsibility under your roof.

It's OK if young folks live with their folks. It's not a sign that they are financial failures. Given the current economic reality for so many, the new normal is economic interdependence.