THE offspring of the Baby Boomer generation have been making the headlines for all the wrong reasons lately.
Although definitions vary, generally anyone born from the early 1980s up until the year 2000 are considered to fall into the millennial category, also known as Generation Y.
They have a reputation for relying too heavily on the bank of Mom and Dad and they can be a real financial drain that significantly impacts their parents' retirement plans.
Like any generation that society has attempted to define in the past, millennials are said to display a number of common traits. They tend to spend more than they earn and live on credit, a reverse from the days when people had to save up before making a purchase. Generation Y grew up in the aftermath of 9/11 when many adopted an attitude of "living for today," so immediate gratification became the norm. Reality TV shows and celebrity culture certainly don't help this.
They also tend to live at home longer than they should, due to high real estate costs and a weak job market. With youth unemployment as high as 14 per cent, twice that of the national average, Baby Boomers find themselves supporting their children until a much later stage in life than previous generations.
Many of our clients want to help their millennial children financially when they see their children struggling to get their "start" in life. Gifting money to your children early to buy real estate or fund further education can be a great idea and we often recommend this to clients. There can also be additional benefits such as tax savings and the satisfaction of seeing your kids enjoy their inheritance early.
While early gifting is often a great idea, there can be unintended consequences when you don't receive qualified tax advice or have a detailed financial plan in place. We stress the "qualified" portion of that sentence as we have seen a situation for example, where inadequate advice from an accountant resulted in the parents paying $134,000 in extra taxes because things were not structured correctly from the beginning! It was disappointing as all of this extra tax could have been avoided had they had better advice at the start.
Ideally in retirement, you want to have more money than you will spend in your lifetime. When planning, you should also include a cushion for the unknown such as an expensive retirement home, unforeseen medical situations as well as future economic changes such as high inflation which could diminish your purchasing power.
Your financial plan should provide a clear overview of your future financial situation so that you can make an informed decision before giving money to your millennial children and ensure that you have enough left over for a happy and stress-free retirement.
Lori Pinkowski is a portfolio manager and senior vice-president, private client group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This article is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604915-LORI or lori.pinkowski@ raymondjames.ca. You can also listen to her every Friday on CKNW at 5: 35 p.m.
