Are you putting your finances at risk by helping your children?

Multi-generational debt can result in serious financial repercussions for a family. That’s why it’s important for parents to find the right balance between their security and their generosity.

A 2019 survey from RBC found that almost all Canadian parents (96 per cent) have financially assisted their adult children (18 to 35 year old) at one time or another. Parents in Saskatchewan and Manitoba who are currently supporting their adult kids spend an average of over $4,806 a year, compared to the national average of $5,623.

What’s worrisome is the significant effect that monetary support can have on parents’ financial security down the road. Almost half (47 per cent) of parents in the prairie provinces worry about the impact on their retirement savings, while more than four-in-10 (43%) have admitted they’ll actually need to put off their retirement.

One of the biggest risks occurs when both parents and their children carry debt. Compared to their children, Gen X and boomer parents have fewer working years to pay off their existing debt loads. While you may not want your children to be burdened with debt, the stark reality is they have a longer time period to pay it off.

Why do parents feel the need to help?

A significant number of millennials are encountering serious financial obstacles.

They have difficulty covering everyday costs, let alone finding savings to put aside for a home, children and retirement. Their work situation is often more precarious and their student loan debt is lingering into their 30s and sometimes 40s. In fact, over a third (36 per cent) of millennials admit their debt has become overwhelming.

Yet many parents still want their kids to pursue traditional milestones: find stable work, save up for a down payment, buy a home, retire at 65. Unfortunately, cash-strapped millennials can’t always follow the same path as their parents.

What are the risks of helping your child with a down payment on a home?

The urge to help an adult child who may be struggling financially can be powerful. First, consider your own financial responsibilities, like entering retirement without a debt burden. Now is the time to revisit your retirement plan. A new survey from Sun Life reveals that almost half of working Canadians believe they’re at risk of outliving their retirement savings.

Are you on track or do you need to make adjustments to ensure your own security in later life? Is there any wiggle room to help your kids out without taking on debt of your own?

If your financial situation is still secure, you might be tempted to help your kids with a down payment, thinking they can afford the mortgage payments on their own. Just remember that a monthly mortgage payment is not the same as a monthly rent payment. If you’re a homeowner, you know that there are additional costs to home ownership that renters don’t face.

This rent or buy calculator can help you and your child make an informed decision.

And if you’re carrying any non-mortgage debt of your own, it’s best to pay it off before giving money to your children. Explore your debt relief options and consider talking to a Licensed Insolvency Trustee to ensure you’re on solid ground financially as you near retirement.

Before you offer financial assistance to your millennial son or daughter consider the real possibility of multi-generational debt. It’s important that you and your child are both making an informed decision. Be sure you understand the impact your assistance could have on your retirement and your current debt load. Then, talk to your adult child about wants versus needs, and whether home ownership is truly affordable for them.

What financial lessons do you share with your children? Visit us on Twitter and Facebook to join the conversation.

by Jasmin Brown - Licensed Insolvency Trustee

Are you putting your finances at risk by helping your children?

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