Time to show the not-so-wee ones some tough financial love.
A new study finds that financial coddling could lead to issues further down the road for both parents and their grown children. According to new research by TD Canada Trust, one in five Baby Boomers (19 per cent) say they would risk their own security and financial future to help support their adult children.
“Today’s high youth unemployment, increasing post-secondary education costs and high property prices means many young people are more likely to rely financially on their parents well into adulthood,” says John Tracy, a senior vice president at TD Canada Trust. “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.
A Rent Break For Gen Y
Of the parents polled, 43 per cent admitted to letting their adult children live at home rent-free, while 29 per cent subsidized big purchases like a new car or a computer. Twenty three per cent helped their kids with regular expenses such as groceries and rent, and 20 per cent helped them pay off credit card or other debt.
Time To Toughen Up Your Wallet
In a release issued by TD, Gary Direnfeld, a family relationship expert and social worker, cautioned that a bit of tough love might be necessary to maintain healthy family dynamics.
“Some parents worry too much about being liked by their kids, but as parents it’s our job to teach our children financial independence so they learn how to cope with frustration, overcome adversity and appreciate the value of a dollar,” says Direnfeld. “Even if money is not an issue, setting boundaries and knowing when to say ‘no’ from the time kids are young will help develop responsible young people, so we don’t end up with a generation of dependent adults.”
Tracy and Direnfield offered up some other nuggets of wisdom for establishing ground rules surrounding your support for “boomerang” kids.
Be Honest About the Financial Burden
“Don’t assume that everyone is on the same page; be clear on what you are and are not willing to support financially,” says Tracy.
Have an open talk about what your adult child’s responsibilities will be in terms of covering rent or household expenses. Set boundaries to help limit any miscommunication. If the support starts to wear on your own finances – let your kids know, adds Direnfield.
“The big challenge is withstanding the initial backlash and staying firm,” says the family relationship expert. “Depending on the circumstances, some families find it useful to seek support from a third party, like a financial advisor or social worker.”
It’s Ok To Be Selfish
It’s important for parents to stick with their personal savings plans, and not be If you’re worried about your willpower, set up regular preauthorized transfers to a retirement savings plan or a tax-free savings account to help keep you on track.
Tracy points out that it’s critical to prioritize retirement savings in peak earning years.
“Millennials have decades left in the workforce to earn money, but Boomers likely do not,” says Tracy. “If parents can’t support themselves in retirement, then they risk shifting the financial strain onto their children instead.”
Get A Helping Hand For Your Budget
There’s nothing wrong with supporting your adult child through a rough patch – but it is important to establish the expectation that your child will help with expenses.
Of the parents polled, 54 per cent estimated that even though their grown kids weren’t attending school, they still gave between $100 and $300 each month to lend a helping hand.
Are You On The Hook For Housing?
Eighteen per cent of parents also admitted to assisting their children with their first down payment on a home.
“Before helping with a down payment, speak with a financial planner and mortgage expert in tandem to understand the financial implications and, more importantly, to find out if all parties can truly afford to do it,” says Tracy. “If your child has saved a sizable down payment and proven they are ready to take on the responsibility of a mortgage, topping up their down payment could save them thousands of dollars in the long run if you have the means.”
Be a Role Model
When it comes to financial literacy, many young people look up to their parents. As pointed out, teaching the basics of money management at a young age can help kibosh a cycle of dependency before it starts.
“Parents should gradually shift their role from financial aid to financial coach, and help their kids establish a plan to get their expenses under control and pay down debts,” says Tracy.
And the best way to teach independence is to help your kids understand the consequences of their financial decisions. “Being a role model is only as good as the example you set – let your children see that you hold them accountable for their own decisions,” adds Direnfield.
This post is also available in: French