Helping your children financially may not be worth it if your own finances are adversely affected

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Personal Finance Family Finance

Parents today who provide financial assistance to their adult children may soon realize that their goodwill comes at a high cost

The best gift you can give your children, say money management experts, is the knowledge and guidance to become financially independent on your own. The best gift you can give your children, say money management experts, is the knowledge and guidance to become financially independent on your own. Photo by Getty/Thinkstock Files

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MONEY MILESTONES: In an ongoing series, the Financial Post examines personal financial questions related to life’s major milestones, from marriage to retirement.

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Parents today who provide financial assistance to their adult children may soon realize that their goodwill comes at a cost, experts say, namely a comfortable retirement.

“If you’re in your 60s, you may have 30 years to live, the last of which is when you need a lot more support and resources,” said Mallory McGrath, founder and CEO of Viive Planning Ltd., which specializes in legacy and estate. schedule.

“I’m definitely worried about the money boomers are giving to their millennials and gen-X kids and I’m worried they won’t have the resources they need later on.”

A third of Canadians were willing to help their child pay for a new home, and only half of those lenders expected to be paid back, according to the RBC Home Buying Sentiment survey released during the first year of the pandemic, which Three quarters were also concerned about the financial impact of COVID-19.

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Parents were willing to give an average of $60,513 to support their child or close relative’s purchase of a home, and nearly half (46 percent) were willing to help their child or relative pay the rent.

“When you’re in your late twenties or thirties, it’s incredibly difficult to buy that first house or apartment while paying outrageous rents,” McGrath said. “Part of the mindset of the baby boomers right now is that they need to support those grown children.”

McGrath doesn’t discourage parents from helping their kids if they have the resources, but said it’s important to identify the root cause of why they intervene and whether it’s always necessary.

“I had one family whose kids looked incredibly good (financially), so I didn’t understand why the money was being given,” she said.

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Some boomers recognize that they will live a long life after retirement, but McGrath said many haven’t given that stage of life, and what it entails financially, enough.

Parents should also think of their other children when they give money to a child.

“I like to say that fair is not always equal and equal is not always fair, but giving money to one child and not another can be risky,” McGrath said. “I always encourage clients to give the same amount to their other children now, or make a provision in their will to ensure the other children get money to balance it out.”

A former court clerk specializing in estates, McGrath often saw cases of adult children fighting over money after a parent’s death due to a lack of communication when all parties were still alive.

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Therefore, parents need to consider the dynamics of the whole family to ensure that their children understand why certain decisions were made and to respect them.

“If parents don’t treat (children) equally, they need to explain why so that the child who receives the money won’t feel guilty and the others won’t feel jealous because it doesn’t benefit them,” she says. said.

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

A recent survey by Meridian Credit Union found that 60 percent of millennials believe it’s important to be proactive and involved with their finances, but half say they are still dealing with a surplus of money from their childhood.

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This generation will most likely admit that their parents were always concerned about money “and they were”. More than half (58 percent) also have little confidence in their financial knowledge.

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

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

The fact that 73 percent of millennials say they don’t work with a financial advisor also shows that there are some “myths” about who qualifies for financial planning.

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“I would encourage them to start planning as soon as they start making money decisions… and as their incomes increase, that plan can become more robust,” Senthamilselvan said.

He said parents don’t necessarily show their kids that there are multiple options for raising capital as well. For example, instead of giving their children a down payment on a house at the risk of their own retirement, parents can lend the money (with or without interest) or let their children earn the money by working for them in some capacity.

“Millennials want to learn how to do these things, so you have to encourage them and not keep 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.

“(Kids) may be dealing with stress, but having a plan in place will make it easier to move forward,” he said. “The parents may borrow a little money or not, but they are there as a support structure and not to meet every need.”

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This post Helping your children financially may not be worth it if your own finances are adversely affected

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