Helping your kids financially may not be worth it if adversely affects your own finances

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MONEY MILESTONES: In an ongoing series, the Financial Post explores personal finance questions tied to life’s big milestones, from getting married to retirement.

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Parents providing financial help to their adult children today may soon realize their goodwill comes with a hefty cost, experts say, namely a comfortable retirement.   

“If you’re in your 60s, you could potentially have another 30 years of living ahead of you, the last of which is when you will be needing a lot more support and resources,” said Mallory McGrath, founder and chief executive of Viive Planning Ltd., which specializes in legacy and estate planning.

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“There’s definitely concern in my mind about the money that boomers are giving to their millennials and gen-X children and I worry they won’t have the resources they need later.” 

A third of Canadians were willing to help their child pay for a new home and only half of those lenders were expecting to be paid back, according to the RBC Home Buying Sentiment poll released during the first year of the pandemic, and that was even though three-quarters were concerned about the financial impact of COVID-19.

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Parents were willing to give an average of $60,513 to support a home purchase by their child or close family member, and almost half (46 per cent) were willing to help their child or family member pay for rent. 

“If you’re in your late 20s or 30s, looking to buy that first house or condo while paying ridiculous amounts of rent is incredibly hard to do,” McGrath said. “A part of the baby boomer’s mindset right now is that they need to be that support to those adult children.” 

McGrath isn’t discouraging parents from helping their children if they have the means, but said it’s important to get to the root cause of why they’re stepping in and whether it’s always necessary.

“I had one family whose children seemed incredibly fine (financially), so I didn’t get why the money was being given,” she said.

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Some boomers recognize they’re going to live a long post-retirement life, but McGrath said many haven’t given that stage of life, and what it will entail financially, enough consideration. 

Parents also need to think about their other children, too, when they’re giving money to one child.

“I like to say fair isn’t always equal and equal isn’t always fair, but gifting money to one child and not the other can be risky,” McGrath said. “I always encourage clients to gift the same amount of money to their other children now, or make a provision in their will to ensure that the other children are gifted money to balance it.”  

As a former litigation law clerk specializing in estates, McGrath often saw cases of adult children battling over money after a parent’s death due to a lack of communication when all parties were alive.

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That’s why parents need to consider the whole family dynamic to make sure their children will understand why certain decisions were made and to be respectful of them.

“If parents aren’t going to treat (kids) equally, they need to explain why so that the child receiving the money isn’t going to feel guilty and the others won’t feel jealous that they’re not benefitting,” she said. 

But the best gift you can give your kids, money management experts say, is the knowledge and guidance to become financially independent themselves.

A recent survey by Meridian Credit Union shows that 60 per cent of millennials believe it’s important to be proactive and involved in their finances, but half report they are still dealing with leftover money anxiety from childhood.

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This generation is most likely to confess that their parents were always worried about money “and they were, too.” More than half (58 per cent) also have low confidence in their financial knowledge. 

Naveen Senthamilselvan, senior manager, Strategic Initiatives, Wealth, at Meridian Credit Union — and a millennial himself — said the survey’s results indicate adult children are willing to learn to be more financially independent.

“Millennial parents just need to talk to (their kids) about their goals and get them to understand that if they’re going to accomplish this by X date, these are the steps to get there … and these are the sacrifices you’re going to have to make,” he said.  

That 73 per cent of millennials say they don’t work with a financial adviser also shows there are some “myths to bust” around who is eligible for financial planning.

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“I’d encourage them to start planning as soon as they start making money decisions … and as their income goes up, that plan can become more robust,” Senthamilselvan said.

He said parents aren’t necessarily showing their children that there are multiple options to raise capital, either. For example, instead of giving their kids a down payment for a house at the risk of their own retirement, parents could be lending the money (with interest or not) or getting their kids to earn it by working for them in some capacity.

“Millennials want to learn how to do these things, so you have to encourage them and not hold them too close,” he said.  

Even with the pandemic causing financial stress, Senthamilselvan said parents need to let go of guilt in order to equip their children for the future.

“(Children) may be dealing with stress, but having a plan in place will make it easier to go forward,” he said. “The parents may lend a little money or not, but they’re there as a support structure and not to fulfil every need.”

Financial Post