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Still Living With Your Parents as an Adult? Well, You’re Hurting the Economy

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charleskremenak, Flickr

While many college grads are only too happy to fly their parents’ nest and get a place of their own, the dip in the economy has meant some can’t — or won’t — until they feel more financially able to do so comfortably. What does this mean for the economy? Unfortunately, nothing good.

Mark Zandi, chief economist at Moody’s Analytics, says each time a new household is formed, the ripple effect adds about $145,000 to the economy.

Fewer new households means decreased sales in industries like retail, construction and manufacturing. And since just 950,000 new households were created last year compared to 1.3 million in 2007, the year the recession began, it creates a self-perpetuating cycle.

Last month, only 74 percent of people ages 25 to 34 were working, with 14 percent of them still living in their childhood homes. That number increases among young men, almost a fifth of whom live with their parents.

Noted British economist John Maynard Keynes calls it a “paradox of thrift.” Saving is good for the individual, but doing it en masse can hurt the economy by reducing demand.

The situation has created a “pent-up demand” for close to 1.1 million new households, which is approximately equal to the number of excess vacant homes for sale and rent in the US right now.

Filling all those dwellings with new residents may not fix the economy entirely, but Mr. Zandi said, “If these pent-up households were to form, then the oversupply of housing would be largely absorbed and housing construction would quickly ramp up.”

[The New York Times]

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