Full-Grown, Dependent, Bundles of Joy

A recent study by TD finds 20% of boomers admit they would put their own financial security on the line to help support their adult children.

In fact, the majority of boomers have already helped out their adult children financially in some form or another.  This includes things like letting them move home and live rent free (43%), subsidizing large purchases like a new car or computer (29%), contributing to their monthly expenses including groceries and rent (23%), or helping to pay off other bills like credit card debt (20%).

“As a parent, it’s natural to want to help when children struggle with finances, but it’s important this support does not compromise your own financial stability and retirement savings goals,” says John Tracy, a senior vice president at TD Canada Trust.

In order to maintain a healthy family dynamic and avoid a cycle of dependency; a little tough love is essential, says family relationship expert and social worker Gary Direnfeld.

Tips for Boomer Parents:

Have open and honest conversations.  If adult children move back home, discuss what their responsibilities will be, including paying rent or covering certain household expenses.

Don’t forget to pay yourself first.  Prioritize your retirement savings, make it simple by setting up automatic transfers of a certain amount from your bank account into your RRSP and/or your TFSA.  Remember your children still have decades to save for retirement, you may not.  “If parents can’t support themselves in retirement, then they risk shifting the financial strain onto their children instead.” Tracy says.

Have a cash flow management plan.  More than half of parents surveyed admitted to giving their adult children $100-$300 per month in support; even though their children are not attending school.  In addition, 18% have helped with the down payment for their child’s first home.  Therefore, regardless of how much parents give to their kids, it’s crucial to implement a cash flow management plan. 

“Before helping with a down payment, speak with a financial planner and mortgage expert to understand the financial implications and, more importantly, to find out if all parties can truly afford to do it,” Tracy says.

Be a good role model.  Teaching your children about money at a young age will help prevent a cycle of dependency.  However, if you are already supporting your adult children, it’s time to switch from financial aid, to financial coach.

If you need help educating your kids about how to get their expenses under control and setting up a cash flow management plan to pay off debt, give me a call.

Happy Canada Day!  Have a great long weekend,

Tracey

 

 

Source:  original article posted on Advisor.ca written by staff 06-24-13