The legacy of racial discrimination in South Africa continues in terms of differences in levels of income and poverty across races. While much work has been done on understanding these dynamics at the level of the household, little attention has been paid to the impact on individual members, specifically young adults. This dissertation illustrates the extent to which young adults of the three dominant race groups (African, Coloured and White) alter their living arrangements and how these changes relate to changing household income dynamics. In this way, a clearer understanding is developed of how household fragmentation and reconstruction influences the well-being of young adults. The Cape Area Panel Study (CAPS) of young adults between the ages of 14 to 22 years in 2002, and 17 to 25 years in 2005, is employed to investigate these living arrangement and income dynamic changes in 2002 and 2005. In general, it is found that most young adults reside with both parents or with their mother. African young adults have a more varied living arrangement pattern than Coloureds and Whites. This dissertation defines a measure of young adult living arrangement stability. This measure distinguishes between young adults who have stayed in the same living arrangement, 'stayer' young adults, and those who have altered this, 'mover' young adults, between 2002 and 2005. This distinction is used to explain and contrast the well-being of these two groups of young adults using their household income dynamics. Overall, while the literature suggests that there is a large degree of fluidity in the living arrangements of young adults, this dissertation shows that it occurs on a limited scale in the CAPS. A poverty transition analysis shows that stayer young adults progress at a faster pace than movers. In contrast, mover young adults experience greater upward mobility in their well-being over time. A multivariate regression analysis shows that whether a change in a young adult's living circumstance impacts on their well-being, depends on their initial (2002) living circumstances. As such, in formulating strategies to enhance the well-being of young adults, attention should be given to the living arrangement dynamics they confront.