How to Set Boundaries When Supporting Your Children Financially

You’ve worked hard and you’ve saved. You thought you might have a bit more money at this point than you do, but money was never as important to you as it was to some, so you spent it on going to Greece a little more than was strictly necessary, and you bought Ardbeg when Forty Creek would have done just fine. But you enjoyed yourself and you never stinted with the kids when they were growing up either. They’re grown now and they turned out well, more or less. You’re proud of them.

Now what?

Your job when they were little was pretty clear-cut, but what’re you meant to do now? Just how much more do we owe our children?

This is not an easy question, as I found out when I was on the phone with my father a few years ago. He was 77 and getting progressively less mobile, and I was making suggestions on short walks he could take. There was a coffee shop about 200 metres from his front door and, despite a flirtation with Caf-Lib in the ’80s, he remained an enthusiastic coffee drinker. “Ha,” he said, without any of the bitterness I was soon to figure he was due. “I wish I had enough for a cup of coffee every once in a while.”

I was floored. He hadn’t done great financially since my mother died decades before; in fact, he’d done spectacularly poorly. But not that poorly.

The answer to the flurry of questions that immediately followed, along with a quick check of his accounts with his permission, was simple: he was giving all his monthly income from his various pensions and annuities, save what was needed for his housing and care, to my sister, who, though successful in many ways, never really managed to make much money and was often short on cash for necessities.

Though I tried over the following years to help him find a better balance between his daughter’s – and her daughter’s – needs and his own, I was ultimately unsuccessful. He was the parent (and in his calculus, also The Man), and it was his responsibility. I didn’t agree, but many would.

But whether you considered yourself responsible before or not, once 2020 happened, a lot of our plans, forecasts and expectations went out the window. Even months into it, there’s no telling what the final fallout of the COVID pandemic might be. The millions of people who applied for the Canada Emergency Response Benefit (CERB) and the various plans that followed are a solid indication that incomes are down across the board. And that’s just the people who are already in the workforce. A study of Canadian men who graduated during previous recessions, published in 2012 in the American Economic Journal, found that the negative income effects lasted as long as a decade – so your kids may now be on your payroll a lot longer than you thought. And the recession Canada is falling into has all the hallmarks of being unprecedented; income repercussions that last a lifetime are not out of the question. The market has been doing well but that very well may not last, so parental investments and retirement incomes may not shake out the way we’d hoped either. That second home you were hoping to gift to your kid may have to be sacrificed to protect your own nest egg from shattering.

What’s a loving parent to do?

It’s not an easy question at all and, though there is an answer, it’s not that easy either.

Here’s another unnerving story. I heard this one from a ManuLife Financial adviser named Leanne Kohtala from Timmins, Ont. She had a client some years back who’d had a blue-collar job all his life and, as the result of what she characterizes as a series of sound financial decisions, retired comfortably at 65 with plenty of money to live the life he wanted as long as he wanted. (She wouldn’t say how sound, but Kohtala says her average client has a net worth “north of a million.”)

Then his adult daughter asked him to buy her a car. Kohtala strongly advised him against it.

“The first thing we want to do,” she says of her clients with six- and low seven-figure net worth, “is do a bit of a stress test on their retirement plan to see how much a depletion of their capital can occur before gifting or lending to their children without causing permanent, irreversible damage to their nest egg.”

But he did it anyway; he withdrew the money from one of his investments and bought her the car. Then, to Kohtala’s lasting chagrin, “It snowballed,” she told me. His daughter asked for more and more help, and it ended with “the complete depletion” of his savings.

And so, in his 70s, after a life of hard work and only a couple of years’ rest, he had to come out of retirement and take a minimum-wage job to make ends meet. (On the bright side, at least he was able to.)

Though statistics show that Canadians from the lower income brackets are still likely to do better than their parents (despite a reverse trend in the U.S.), the global tendency toward wealth concentration analyzed by French economist Thomas Picketty and decried in a viral video by Dutch historian Rutger Bregman in 2019 at Davos has its effects on those not born to economic privilege, making it tough – some say impossible – to break through into financial security. Parents hate to see it and can squander modest means in loving attempts to forestall the inevitable.

But according to the same research that revealed Canadian gen-Xers and elder millennials are actually mostly doing as well as their parents, this is not just – or even primarily – the problem of those with modest means.

Yuri Ostrovsky, a statistician with Statistics Canada, author of the 2017 paper Doing as Well as One’s Parents? Tracking Recent Changes in Absolute Income Mobility in Canada, found that in the middle range of income, “about 70 per cent of kids did better than their parents.” Encouraging news for the middle class of people who are continually being told they’re disappearing. “But,” he adds, “there is still a substantial number of kids who don’t do better than their parents.”

The top 0.1 per cent is always going to do fine in this respect, no matter what their kids do or don’t. But those even just under that threshold are facing a serious generational problem.

“For rich families,” he says, referring to his sample of people born between 1970 and 1984, “the probability that kids did even better than their parents was fairly low.” For the top one per cent, 93 per cent of their children will be earning less at 30 than their parents did but, perhaps more surprisingly – or alarmingly, depending on your own bracket – for the top decile (10 per cent), the figure is 76 per cent and, even for the top third, it’s still more than half at 59 per cent.

This means there is and will continue to be an understandable urge among parents to do right by their kids. And that means we need a workable definition of what’s right.

It will not come as a surprise to anyone who has read a parenting book that there is value to saying no. But while most parents can see the developmental advantages of teaching their children lessons by telling them they can’t have ice cream or a Nintendo Switch, when your grown child messages you saying they’re in trouble, it can seem like a different story.

And it is a different story. There are few lessons you can effectively still teach your 30-year-old, and getting kicked out of an apartment or having a car repossessed obviously outweighs the repercussions of not getting the game console you wanted. But boundaries are just as important as they ever were, even though they’re now protecting you.

“I love the term boundaries,” says Dawn Hawley. She has been a financial planner in Edmonton for more than 20 years and has won several awards for it. Before that, she was an estate administrator. Her clients’ net worth ranges from $5 million to $100 million. “$5 million doesn’t let you live extravagantly,” she says. And it doesn’t let you pay for as much as your kids may think it does.

“Oftentimes, we don’t see the boundaries,” Hawley says, “if we have a family that maybe shouldn’t be supporting kids into their 30s. The first university degree, yes, but the second degree, you have to pay half. And I know a lot of wealthy clients that will lend children money instead of getting a mortgage for them, but we talk about the kids having to repay it or at least a portion of it. Maybe without charging interest.” Where we see the disasters, she adds, is where parents just give to no end, without boundaries.

Even without the relatively common down payment wedding gift, parental generosity without restraint can lead to another problem. According to another StatsCan report released last year, in 1997, 900,000 people aged 24 to 64 lived with at least one parent. By 2017, that number was 1.9 million. Almost 75 per cent of them had never lived anywhere else; 70 per cent were single. In the U.S., where there are similarly high numbers, psychologists and others have started running “rehab clinics” for those aging kids unable to get themselves going. (Maybe those parents shouldn’t have read The Giving Tree to their kids quite so enthusiastically.)

If kids aren’t able to fend for themselves and then they have kids, it may not just be their bills you’re left with. The 2016 census found that 32,520 children 14 and under were in the primary care of their grandparents. It’s known as skip-generation, or skip-gen caregiving, and it was up almost 30 per cent from 2001.

So here’s the thing: unless you’ve decided that the moment your child crowned, your personhood was replaced by parenthood – some have, and peace be with them – your life still has purpose outside of the care you give to your offspring. Whatever you figure that entails, whether it’s travel or going back to school or a new career, you’re going to need time and, more to the point, money. All of which is to say, in partial answer to that difficult question we started out with, that your 80th year is as valuable as your child’s 40th. The rest of the answer is: behave like it.

The first thing to do is to let your children know that if they’re going to be holding on to your apron strings, you’ve got a couple of strings of your own to add. Instead of giving gifts, make loans. “For our clients who insist on intervening financially,” Kohtala says, “we counsel them this way: we say that while it might be awkward to request that your son sign an official promissory note, we are recommending that you insist on payment being made to you right out of the gate. Collect post-dated cheques. Provide a loan-amortization chart to your child, and this clearly shows that this is official business, repayment is expected, and you can chart your progress.”

If it sounds a little cold, that’s intentional. As Kohtala says, and Hawley agrees, “Parents confuse giving money with giving love. It happens all the time. We try to stress to clients in this situation that not providing financial assistance to their adult child can also be a loving act. Money and love are not the same thing.”

If your children are newly fledged from the nest, don’t pay basic bills like phones and rent. If they’re further along, only co-sign a mortgage if the lender is able to stipulate that you’re merely vouching for them. Otherwise, Hawley says, you could be on the hook for capital gains tax.

“My son started a business and had no T4 income for a couple of years,” she says, “so I co-signed for him on the property. When I go to remove my name from title, since you have to report any disposition of capital property, it’s documented that it’s his property, his title, I have no beneficial interest in the property and, therefore, should have no liability.” She suggests getting a lawyer to draw up papers to this effect to show the CRA should they ever ask.

Things never got fixed with my own father, who died last year, content but penniless. He had wanted to travel a bit more, visit some long-lost and newly discovered relatives and get a little more food delivered from Fountain Traditional Chinese on Blanshard than he’d been able to. My sister, a good mother to her daughter, who has put a sound roof over their heads, might have been able to pay some of that money back over time had it been a loan rather than a gift, providing my father with a bit more for the occasional coffee run, even if ultimately his death would have made it a gift retroactively. None of its my absentee-son business, of course.

“Failure to launch” is a familiar concept (those rehab operations in the U.S. are known as FTL clinics), and parents understandably want to do whatever they can to help launch their children into self-sufficient lives. But what might be called a retiree’s failure to land is just as serious. You need a cushion; think hard before letting your kids take all the stuffing.

A version of this article was originally published in the Jan/Feb 2021 issue with the headline “The Parent Trap,” p. 76.

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