Giving until it hurts

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This article was published 03/08/2024 (411 days ago), so information in it may no longer be current.

Canada may have five Big Banks.

But an increasingly important linchpin financial institution is the “bank of mom and dad.”

That parents and grandparents help out the kids financially is a fairly evergreen phenomenon.

Yet it’s likely never been more needed amid inflation and higher interest rates, and a new study sheds light on this ongoing, growing financial burden for parents and grandparents, revealing that they’re not just providing one-time injections of money, like helping kids purchase a home. Increasingly, they’re providing ongoing support to the tune of several thousand dollars annually on average.

And it’s coming at a cost to the point where parents/grandparents’ own lifestyles are imperiled.

“Anecdotally we see this happening a lot with our clients,” says Craig Bannon, a director of financial planning at RBC, based in Halifax.

The RBC survey adds statistical heft to what the bank’s financial advisors are seeing. Called the 2024 RBC Family Finances Poll — Grandparents Edition, the poll found that among Canadians aged 55 and older, 21 per cent currently support at least one adult child aged 25-plus, and 30 per cent have provided money to grandchildren.

In some cases, that generosity has been detrimental to the givers, with 54 per cent sacrificing their own savings, 52 per cent needing to make lifestyle changes, and one-third worried about running out of money for their long-term needs.

Equally troubling is that many are not sure of the actual impact, with only 37 per cent stating they have reviewed their finances to see if they can sustain the support.

Just one in five have examined the effect on their retirement plans.

“They’re really not sure until we ask and put a plan together,” Bannon says.

The study found that the impact is likely substantial.

The average amount given per year is about $7,000 to adult children and about $4,000 per grandchildren (excluding gifts and holidays).

It’s not just RBC clients, of course.

Many financial advisors are seeing more clients who want to help.

That said, most of certified financial planner Jeff Ryall’s clients at Cardinal Capital Management in Winnipeg are not giving until it hurts.

“I see more parents and grandparents reflect on their successes and financial position, which puts them in a position to help their children and grandchildren out now while they are trying to get established.”

Yet that generosity is often for the typical milestones like buying a home or a wedding.

“The scenario of constantly providing support is usually more complex,” he adds, noting it could be a result of a “disconnect between lifestyle expectations” and financial reality for the children/grandchildren needing help.

“There could be unplanned career changes or family illnesses causing additional stress, which parents and grandparents are trying to relieve,” Ryall says.

But it also “could be bad financial habits that require development of financial skills, knowledge and discipline.”

In the latter case, financial support can be like applying a Band-Aid to a wound that won’t heal without addressing the cause.

Whether it’s situational or self-inflicted due to poor choices, the current economic environment has only exacerbated the problem, says MaryAnn Kokan-Nyhof, also a certified financial planner and division manager at IG Wealth Management in Winnipeg.

“I’ve definitely seen it more now in the last year than ever before,” she says.

She is seeing and hearing of more aging clients helping out adult children with mortgage and line of credit payments, or rent — all of which have risen substantially over the last two-plus years. As well, while high inflation has largely been tamed, these elevated prices — especially for food — tend not to come back down to where they were two years ago.

“It’s a pretty common theme,” Kokan- Nyhof says. “There is an overarching feeling for a lot of people I’m dealing with that they need to help their kids get by.”

It’s not just retired parents and grandparents.

It’s also factored into financial plans of near-retirees more and more, says fee-only certified financial planner Jason Evans with Evans Retirement Planning in Winnipeg.

“That number (in the survey) of about one in five helping their kids seems about right based on what I’m seeing.”

More often than not, these clients have adult children still living at home. In turn, parents are incurring additional costs providing food and shelter.

Some are even making car payments for their kids.

Many recognize the potential impact.

“They’re seeking help from a financial planner because they’re concerned about their finances, and they want that clarity to know how much they can afford in retirement,” he says.

“So they’re doing it right in terms of finding out what their retirement income will look like before they commit to how much they can afford to help their children.”

Of course, a big-picture outlook like a financial plan will show when their financial benevolence is going too far, which should lead to them having a talk with their financially needy offspring, Bannon says.

“It’s a difficult conversation, but one we would encourage them to have.”

Part of that should involve showing the numbers and describing the outcomes.

“That could be something (like), ‘Either we’re going to run out of money sooner than we thought, and we will be calling back on you in the future for help,’” he says. “‘Or maybe we can come up with a compromise of helping for a set period until you’re on your feet.’”

That could then lead to the opportunity to bring in the children/grandchildren in question to a financial advisor for help budgeting and other services that may provide long-term fixes, Bannon says.

“We can help them figure out what’s possible without the bank of mom and dad, or grandma and granddad.”

Joel Schlesinger is a Winnipeg-based freelance journalist.

joelschles@gmail.com