Is being the Bank of Mom and Dad affecting your retirement plans?Nov 10, 2015
With many millennials choosing to live at home after graduation due to underemployment, high housing costs and a whole range of economic concerns, it’s often their parents who end up paying the price. A recent CIBC survey found that 66 per cent of parents are feeling the impact of supporting their adult children financially. And nearly one quarter of those parents find themselves spending upward of $500 per month, which could include free room and board, groceries, cell-phone bills, car payments and—for 12 per cent of respondents—debt repayment toward their children’s debts.
Even kids who don’t live at home are withdrawing from the Bank of Mom and Dad when it comes to housing. Here in Canada, up to one-third of first-time homebuyers said they were counting on their folks to lend them a hand. Although the value of a house usually does appreciate over time—especially if you’re fortunate enough to have bought into a hot housing market like Vancouver or Toronto—it can be unclear whether the parents will benefit from said price appreciation. Have you set up a debt repayment plan with your children, or are you treating that down-payment donation as a gift?
Have you saved enough for retirement?
We won’t get into the RESP vs. RRSP debate here. This isn’t about choosing which registered savings plan to prioritize; if your child has grown up and finished school, you’re no longer saving for their education. Rather, it’s more a question of when do you cut the cord? Does the Bank of Mom and Dad ever close? Well, with 48 per cent of Canadians over 50 having saved less than one-quarter of what they’ll need in retirement, it’s time to start looking for ways to close the retirement savings gap—and cutting back on your children’s expenses might be one way to start.
With the Financial Consumer Agency of Canada (FCAC) sponsoring Financial Literacy Month this November, now is an ideal time to start talking some dollars and cents into your offspring. The FCAC offers educational modules for several major life events, including moving out on your own. It would be a good idea to take some time to go over the helpful information on the website with your children during your next Family Annual Meeting and discuss what their future plans might be. It could also be a good time to reflect on your debt and re-examine your finances to see where you might be able to cut back and save a little more for retirement.
Leaving the nest doesn’t mean they’ll never return
This isn’t to say you should sever all ties. Once children move out, it’s a good idea to call them regularly and check in to see how they are doing. And you can still have them over for dinner and spend quality time together. Just as long as they know that spending time together doesn’t always mean spending money on them.
Offer to work together with your son or daughter to create a monthly budget, so they’re able to keep track of their spending. The FCAC has a budget calculator that will allow them to enter their income, savings and spending, which is broken down into several categories, including housing, food, education and debt repayment. If you continue to support your children financially, this will give you a good idea of what they should be spending on a monthly basis. It will also help them manage their expenses and provide them with reasonable spending expectations when they move out on their own.
Are you still covering expenses for an adult child? Share your thoughts with BDO by joining the conversation on Twitter using #BDOdebthelp #CountMeInCA