By Ritika Dubey
“If there are no limits, parents can put themselves in a precarious position,” said Sara McCullough, financial planner and owner of WD Development.
Parents should evaluate whether they can afford it or risk putting themselves at risk in the future, she said.
It’s not uncommon for parents to help their adult children pay their monthly bills or put down a down payment on a home, but as the affordability crisis hits all generations, experts warn that parents should first review their own retirement plans and establish reasonable limits before lending others financial assistance. hand.
In McCullough’s practice, she often helps parents who are worried about their children’s unpaid bills or the lifestyle they can’t afford.
“Parents came to me and said: ‘We think we’re helping our children. They became overwhelmed,” she said.
“I will ask the parents to make it clear to the child: ‘We will do this for you once.’”
Over the past two years, financial hardship has hit Canadians hard: inflation was at levels not seen in decades, borrowing costs soared, and while house prices have moderated, they remain completely unaffordable for many. The cost of rent has also increased. At the same time, wages have increased by around 5 percent, but they continue to catch up with prices.
And as food and housing costs take up a larger share of the monthly budget, families sometimes struggle to find money for child care, utilities and clothing – let alone vacations.
Parents willing and able to help their children financially should start by setting limits, McCullough said. This can be different from family to family, but it is said that establishing the nature of help up front lays the foundation.
Parents need to be clear about whether the money is a one-time gift, recurring help paying bills or a loan, she said.
If the money is used to bail out their child, she added, parents should push their children toward professional help so they don’t end up in the same situation: “It’s a gift with conditions.”
She said one of her clients was helping their adult children with monthly payments.
“(Parents) were making a monthly transfer to their adult children in their 30s. The son was married. They had two children,” McCullough said.
“This effectively meant that the child had 33% more income to spend than what they earned on their own,” she added. The monthly transfers convinced the adult child to move to a larger home and plan for a third child while the woman considered becoming a stay-at-home mother.
But the parents were going to retire in three years, McCullough said. The transfers would eventually stop after retirement – all while the children didn’t know what their parents thought about their own financial health.
“What will happen when you run out of money?” » she asked. “Now we have two families with no money.”
Stephanie Kotsopoulos of Toronto-based Basis Wealth agreed that open communication about finances is essential and that professional help could make it smoother.
“Make it clear up front,” said Kotsopoulos, a financial planner and partner at the firm. “It’s hard for other people to know what you’re thinking, and so I think in those kinds of situations…it’s important to have those conversations.”
She suggested seeking independent legal advice for both parties if parents are helping to make a major purchase, such as buying a house. This would ensure that both parties are protected.
If parents aren’t comfortable giving money, they should be able to respectfully explain it to children, Kotsopoulos said. Likewise, if adult children have questions, they should be able to ask them.
Parents also help their adult children with everyday expenses, like paying for their grandchildren’s extracurricular activities or unexpected expenses like car repairs that would otherwise be listed on a credit card.
Because of the diverse nature of small but unexpected expenses that pile up on credit, parents don’t always know what the money is being used for, McCullough said.
With each rescue situation she added, it’s an opportunity for adult children to understand the financial consequences if their parents weren’t there to help them.
It all depends on what parents are comfortable giving and whether they know they’re not risking their own projects, she said.
“Because we’re living so much longer… you’re potentially going to have to fund yourself into your 90s, maybe even longer than your actual working years,” Kotsopoulos pointed out.
Parents should be able to envision – and plan for – a healthy retirement life before deciding to help their adult children, she added.
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Last modification: October 18, 2024