The Bank of Mom & Dad
Middle-aged boomers on the cusp of retirement are shelling out for everything from food and shelter to student loans, and many are doing it at their own financial peril.
Does this sound like your house? Your 20-something kids are in the basement playing video games. You are sitting at the kitchen table going through the bills. You are interrupted by one asking what’s for dinner. You look up from the bill you’re perusing – the one attached to your hungry offspring’s cellphone – and think, really?
If it’s any consolation, you’re not alone. According to Statistics Canada, a whopping 42 per cent of young adults aged 20 to 29 were in the parental home at the time of the last census (in 2011). Middle-aged boomers on the cusp of retirement are shelling out for everything from food and shelter to student loans and plane tickets to the Caribbean, and many are doing it at their own financial peril.
According to a recent study by Merrill Lynch Wealth Management entitled Family and Retirement: The Elephant in the Room, 62 per cent of people aged 50 and above are providing financial support to family members, often without due consideration as to how their largesse was going to impact their own retirement.
Retirement can be expensive, and it is easily possible in our age of universal health care to outlive your savings, sometimes by a wide margin. The situation has gotten so bad that there are now self-help books aimed at boomers whose kids are treating the parents like their own personal ATMs.
“A lot of people see their children in need and feel stressed about it, but you shouldn’t feel pressured into giving money,” says Penner. “Know your assets, do a proper balance sheet. If the numbers don’t allow it, don’t do it.” He adds that it’s a good idea to put loans in writing. Doing so creates a firmer sense of the obligation on the part of the borrower, and the contract can be something you can wave in the air when you’re the lender and your kids miss a payment!
Penner says he was moved to write the book following discussions with Vancouver-area realtors who reported – anecdotally – that an increasing number of first-time home buyers were plumping up their down payment with loans or grants from Mom and Pop. Hey, it is an expensive world, and nobody is trying to suggest that it is immoral to provide financial support to adult children. At the same time, it would be wrong for young adults to consign their parents to penury in retirement because of the decisions they themselves made on the way to, uh, maturity.
Tackling the parents and progeny issue from a different perspective is Vancouver-based chartered accountant and investment adviser Emily Griffiths-Hamilton. Her book Build Your Family Bank: A Winning Vision for Multigenerational Wealth is less about supporting needy adult children than preserving hard-won wealth through successive generations. “The failure rate for family succession plans is an astounding 70 per cent,” she says. Many families with assets to pass along focus on controlling these assets and minimizing or deferring taxes, ignoring the “human elements” of the family that are crucial to the process.
Again, open and honest communication is the key to success. Families need to be run like successful corporations and nurture human and intellectual capital the same way Microsoft or Apple might. “It doesn’t matter if you’re a family or a not-for profit; the more everyone is committed to the core values and culture, the more successful the family or organization is going to be.”
The Bank of Mom and Dad does not have to publish annual reports so it’s impossible to determine how much financial support boomers are providing to their adult children in Canada, but we do know that six in 10 parents are extending some kind of financial credit to family members, so the figure has to be significant.
Here are some numbers we do know, thanks to a recent report from TD Canada Trust.
19 per cent of boomers say they would put their own financial future at risk to help their adult children.
43 per cent allow their adult children to live at home rent-free.