The Bank of Mom and Dad has been a stopgap for adult kids who require financial assistance, but some parents are now asking at what cost and for how long.
A recent survey from Toronto-Dominion Bank found that 57 per cent of parents polled expect to help their adult kids financially because of the high cost of living and housing. But 61 per cent also worry about their ability to assist.
Some advisors report that retired parents foot the bill for many of their adult children’s expenses, even when the children are well into their 50s.
Desmond Nwaerondu, certified financial planner (CFP) with Tusk Financial Services Inc. at Sun Life Financial Investment Services (Canada) Inc. in Calgary, says some parents have provided money to their children for decades, to the point at which it’s relied upon and expected. He recalls one client who purchased a house for their son so he would leave the family home, but the son has a low-income job and isn’t motivated to find other employment.
“Giving money is something they’ve always done as the child grew up,” Mr. Nwaerondu says. “And when the child became an adult, they never cut those purse strings. As a result, they feel they have to continue.”
These parents admit to their advisors they’re caught in a rut and don’t know how to navigate these tricky discussions. They love their children and want to see them succeed financially, even if it means enabling them.
Mr. Nwaerondu says the conversation usually starts when clients mention a substantial withdrawal to help their kids. He doesn’t intervene regarding family dynamics, but he shows the parents how the withdrawal affects their long-term plan and cash flow so they can make an informed choice.
“It always flows back to whether they can continue to live the life they want after putting their kids’ interests and needs first,” he says.
Sometimes, there’s no cause for concern. But Diane McCurdy, president and CFP at McCurdy Financial Planning Inc. in Vancouver, says giving money to adult kids constantly can cause great stress for elderly parents. And their kids may not be aware.
In many cases, she says, parents get tired of the “drama and constant sales pitches,” as they get older, so they provide the money even though they want to say no. They aren’t sure how to do so without hurting feelings.
“They take on the children’s stress and can’t handle it,” she says. “The children aren’t intentionally causing stress, but they need to be told.”
Ms. McCurdy also steers clear of advising on family dynamics unless parents ask specifically. Nevertheless, she helps them establish boundaries, such as providing warning signs to the children instead of cutting them off abruptly. For example, parents can note their many gifts and tell their kids when it’s the last time they’ll provide such assistance.
“They’ve helped as much as they can, but now they have other areas for their money – whether it’s for their retirement, leaving money to charity and giving back in other ways beyond their children,” she says.
Mr. Nwaerondu says, in some cases, parents will make do with less to help their child, including sacrificing retirement income. “That’s their decision to make.”
In such cases, he documents details of the conversation, including his recommendations and the client’s decision, in case there’s a complaint later on.
Sometimes, adult children aren’t asking for money. Jim Pan, founder and CFP at Panorama Financial Planning in Vancouver, says some parents consider it their duty to provide money to their adult children.
This mindset is especially prevalent in some first-generation immigrant communities, he says, where the parents saved and scrimped to provide a better life for their kids. But their adult children feel guilty about receiving large gifts and want to build something for themselves. Many are doing well financially without the help, Mr. Pan says.
“With my clients, it’s more about managing the emotional complexity between the parents and the child around this issue,” he says. “Kids want their parents to spend more on themselves, but they refuse.”
He also helps parents and their adult kids with estate planning, including passing wealth to heirs ahead of time so parents can use their money for personal enjoyment without feeling guilty.
“It’s hard for the parents to change their habits,” Mr. Pan says, but doing so can help them move on and enjoy their retirement.
