Embracing the Family Clan, for their Healthy Financial Future

With baby boomers reaching maturity, new responsibilities can become overwhelming in a struggling economy. With parents in retirement, children growing up but staying at home or leaving, the financial burden for each can strain the whole family’s finances to a breaking point.  Certainly if one finds themselves living paycheck to paycheck it is easy to make an argument for change.

Yet the strategy for self-sufficient living seems to dominate the typical American’s way of thinking, that is for the most part, graduate college and go live on your own.  Certainly existing housing stock reinforces this notion. Yet in many cultures and even to an extent here in the US more people are opting to keep the family together, with grandparents, siblings and with in-laws. Financially, the strategy is sound, that is, one property supports many families or individuals.

The worry?  Someone is a slob, loud, argumentative, problematic with an addiction, or some other self-destructive behavior. In this respect one has to establish rules to govern the standards which everyone needs to comply with. For instance, all public shared spaces must remain clean, and debris or storage free. But in this respect a well designed dwelling can answer many of the needs of most people, in providing secure storage areas, efficient handling of trash, sound absorption methods that limit the distance of airborne noise, and even orientation of spaces to further isolate individual dwelling modules.  In this respect we have developed several housing prototypes as noted in previous or upcoming articles. For this article, we discuss some of the financial benefits to shared habitation.

Certainly shared habitat can be accomplished with a home owner providing rental units and there are advantages to doing so.  The rentals help support the property and homeowner.  There’s also disadvantages to ‘renting’ to family members especially if they can’t meet rent or some other conflict arises.  They’re family, so one could find themselves stuck with the situation.

Further, it is in the American’s mind set to have their own independent dwelling unit, away from their parents or other family members, so they can live their life as they see fit without gossip, embarrassment, criticism or other socially negative ramifications. Certainly there are other reasons to leave the nest, but when you find yourself living within the same small city as your brothers, sisters, parents and grandparents it leaves open the question of ‘is living independent the only option?’

Why this topic? Not only are there many families who have extended generations living right in the same home, a home that isn’t designed for such accommodations, but recently I had a meeting with a potential client in her home.  She was a widow, her husband dying in a vehicular collision when their youngest was just 6 months old.  At the time I meet with her, that youngest was 20 years old and still living at home with 2 other siblings, and, the widow’s own mother meaning her, as the only bread winner was supporting 5 adults (including herself).  With two boys, independence is an issue and of course they moved into the basement, the ‘girls’ staying on the top floor.  It’s pretty much what one would expect with family adults of different genders, and if a carriage house or attic was available you know the boys would take over those spaces.  It both reflects how we think differently of the different genders, and how those genders function on a daily basis.  The boys are more likely to have odd hours of ‘operation’ while the girls are more likely to be consistent in their daily routine thus they occupy the public core circulation spaces when the boys occupy the fringes in order to have direct access and egress.

This is, in effect, a housing type no one has considered as a programming and design challenge.  Much like original housing that had both a functional storefront with residential above, this is unique in that it will serve a purpose to allow for better use of new housing, typically designed for the young growing family unit, to remain useful as children grow up, go to college or even have a new generation start a family while taking care of elders, offering those elders a downsized yet independent living circumstance.  Yet even in the 1960’s there were some layouts were the master suite was on one end of the house while children’s bedrooms were on the other end, that offered some hope of split living with common living areas in the center, it wasn’t itself designed to accommodate adult generations or living circumstances.

And let’s face the reality that designing a home for a young growing family with newborns, toddlers and teenagers is a very different problem than designing for multiple generations.  The question arises can both be accomplished?  Certainly both gender needs adds to the challenge, understanding that by pre-teen one does not usually allow boys and girls to share the same room.

Let’s get to it and look at this issue from a financial standpoint, to understand what the financial implications are of living alone, or with family, not forgetting that if another family member pays for one’s livelihood there may be less incentive to work and ‘make a living.’   But for our purposes, we’ll assume that each adult makes a lower than average yearly income, to see if there is a way to make each member financially independent.

A house and property might cost someone $500,000. In New York City this house will probably need at least another $75,000 to make it habitable due to neglect, lack of functionality and changing tastes.  While a young couple may have the money for a downpayment and a 30 year mortgage, the risk is two fold: One, or both may lose their job and lose the house, and both are committed to paying off the mortgage for 30 years which is a very long time to not actually own the property you rely on as home, shelter, safety.  Of course this is how most people interact with their housing needs, but it is also spurring the trend in tiny home living, where people downsize and purchase the entire home for $45,000±, thus, living free of debt.  Certainly with all the foreclosures in every city, the danger of losing one’s home is very real.

Let’s look at the opposite circumstance, a family who is wealthy.  The parents purchase a home for their newly wed child paid in full.  Now the child and their spouse can put their money into the bank instead of paying off a mortgage.  If and when they sell the house, not only do they recover the entire purchase price, in our example $500,000, but they also have their own savings to add to the money they have.  The contrast here is striking.  The other couple with the mortgage could lose all the money they invested into paying off the loan and be left completely broke, while the ‘rich’ couple is actually building their savings.

This acknowledges that renting means one will never be able to get their money back and therefore purchasing a home is clearly the better option because as one makes a mortgage payment it is like putting money in your own bank (you being the bank owner).  It’s just you don’t get the key to your bank until you sell, understanding that you could lose every payment if you foreclose and thus putting you in a position no better than a renter.

Taken only from a financial point of view only, no one should ever rent an apartment.  And you might be surprised that there are some parents that are capable of purchasing a condo or co-op for their child while they go to college, allowing them to recover and perhaps make a profit in the process (not taking into account closing costs and taxes, which I’m sure they manage).  It essentially means, if you have enough money to purchase outright, you can keep your housing costs at zero.

The problem is one of attitude, that in our typical American culture, getting out on one’s own is considered ‘a right of passage’ and necessary, but as shown this attitude has financial consequences. Yet in other cultures, and I am speaking generally, having siblings live at home longer is natural and almost expected, at least until one gets married.  The ‘push them out of the nest’ is reinforced by the typical layout of the suburban home as well, that all bedrooms are situated adjacent to one another, not providing the opportunity for separation when children become adults as needed for individual freedom of movement.  No parent wants their now adult child coming home at 2 in the morning with a ‘guest,’ giggles and all.  After all, they want to sleep and it’s not their party.  In this respect, homes should be designed with at least one bedroom separated from the others, and if possible with a lower level connected to a separate entrance, all to allow for flexibility.

There’s also a clear financial benefit, as the adult child has the opportunity to save income, which should be directed to paying off the mortgage of the home they inhabit.  In fact this should be the goal of each adult within a family clan, that no person shall have a bank loan, that the family unit should attempt to pay off the initial mortgage, then if one leaves the nest to pay off the next mortgage, until all members are both financially independent and capable of saving that ‘rental/loan’ income for future needs and their own financial security as well as the next generation’s financial security.

Lets face it, purchasing a home IS the biggest financial investment almost everyone will make in their lifetime.  Doing so isn’t easy with the downpayment, repairs and mortgage payments, and being an agent of a bank who is making money off one’s own desire to live independent isn’t in the best interest of the family clan or individual who made the purchase.  That’s right, those who have a mortgage are employees of the bank, helping them make money, with only the permission to live on the property as a benefit.  The bank, for its part, has nothing to loose as the equity of the home itself guarantees they are financially protected even if the mortgage holder defaults, while the mortgage holder does all the work to pay for the property.  Further, it is ironic that the bank can repeat this process for the same property over and over, essentially making a limitless profit from one property as new owners secure new mortgages.  For example, a couple buys a home for $200,000 for a 15 year mortgage when paid in full they sell the property. A new couple purchases the same property for $350,000 for a 15 year mortgage and when paid in full they sell the property, and so on. In a 30 year span, the bank has made interest on $550,000, and so on… in a never ending cycle.

From this perspective, why would anyone willingly choose to work for someone and not make any money? Yes the value of a home can increase, but it can also decrease, so there is some risk.  And yes assuming you actually sell and not default on the loan you are more likely to get the money you paid into the mortgage back in your hands which isn’t the case for renting an apartment. But, it would be, if possible, and by leveraging one’s own family, to ‘loan’ directly from the family itself to ensure that the ‘money and investment’ always remains within the family even if there is a default.  With the house fully purchased by the family, a default of the family member inhabiting the premises means little, but given the potential to work, make money and pay into the ‘family clan fund of home ownership’, the entire clan can only stand to make more money while essentially living in a shelter and on a property for free.

To make this work, in order to offer financial security for every generation, one has to devise a plan for each generation.  We talk about the need to save money for college, but it is homeownership that is one’s best investment, and through the family can be an investment without risk of financial ruin.

Please let us know what your thoughts are?

As an example, a new prototype for dwelling developed by SimpleTwig Architecture: Prototype Single Family Dwelling with Multiple Suites. http://www.simpletwig.com/blog/?p=1725

We may have other related articles and prototypes, please refer to our categories or search our blog.