Finance and Economics Discussion Series

Returning to the Nest: Debt and Parental Co-residence Among Young Adults

Lisa J. Dettling and Joanne W. Hsu
2014-80

Abstract: This paper examines the relationship between a young adults' debt burden and the decision to co-reside with a parent. Using a quarterly panel of young adults' credit histories, and controlling for age, country, and quarter fixed effects, and local demographic characteristics, unemployment rates, and house prices, we estimate the relationship between current period debt and subsequent decisions to co-reside with a parent. Our results indicate that indebtedness--as measured by average loan balances, declining credit scores and delinquency on accounts--increases flows into parental co-residence. Moreover, after moving in, delinquency and low credit scores increase time spent in co-residence. We find that the changing debt portfolios of young adults over this period--characterized by rising student loan debt and small declines in credit card, auto and mortgage debt--can predict 30 percent of the observed increase in flows into co-residence, and 26 percent of the observed increase in time spent in co-residence.

Keywords: Consumer debt, household formation, delinquency, boomerang generation