Should you lend your adult children money?
No. But many seniors do it anyway.
Research from TD Canada Trust shows that the majority of boomer parents have financially supported their adult children in some capacity. Most common money bailouts? Living at home rent-free, with subsidizing big purchases, like a car or computer, coming in second, followed by contributing to monthly bills, like groceries and rent, and paying down credit cards and other debt.
One in five boomers helped their kids with a mortgage payment on a house. Kind of gives a whole new meaning to the phrase charity begins at home, don't you think?
My wife and I have two kids. We're blessed. But I've often thought that kids should come with a warning label, something along the lines of, Caution: May be hazardous to your retirement plans.
A recent poll found that more than one-third of Canadian parents with children under the age of 25 will have to delay their retirement to help their kids pay for their post-secondary education. And having your 20-something kids living in your basement probably isn't part of most parents' retirement dream.
I can live with being an empty-nester although I'm not there yet. I don't want to live with an empty wallet.
How can we make sure that doesn't happen? First, ask yourself whether you can afford the gift or loan. Your kids have decades left in the workforce to earn income. You don't. If you can't afford to help, don't do it.
If you want to lend money to your kids, you need to make the transaction as businesslike as possible. That means getting your agreement in writing and setting a formal payment arrangement. And be prepared for something to go wrong. Every time you lend someone money there is a chance you will never see it again. What if, for instance, your kid loses their job, separates from their partner or becomes ill? Are you really going to foreclose on the mortgage if they miss a payment?
I have friends who believe that once their kids turn 19 the Bank of Mom and Dad is closed. Others think that instilling some financial responsibility in their kids is part of being a good parent - and that's a challenge if your kids think you're an ATM.
Financial experts will tell you if you want your adult children to be independent, self-sufficient grownups you need to be very careful about loaning them money.
I get that. I'm not a big fan of tough love but there is a lot of value in thinking about and working your way out of a problem that you've created.
But we are talking about our kids here, right? When you need a helping hand, if you can't turn to your family, who can you turn to?
If you're considering loaning your kids money the question to ask is are your adult children hard-working responsible adults? Or is it an enabling situation? If it's the former I wouldn't rule out making a loan. Once. But I'd make absolutely sure that I didn't sabotage my own financial stability and retirement plans if I did so.
Tom Carney is the former executive director of the Lionsview Seniors' Planning Society. Ideas for future columns are welcome. [email protected]
