A FAILURE TO LAUNCH, OR A FAILURE TO PLAN
New research suggests boomer parents taking financial hit to help their millennial kids
Money doesn’t flow freely in the Lai household these days.
After all, the Vancouver family has plenty of bills associated with raising two children under four years old.
But one thing that Bob and Ayoe Lai try to always find money for is saving for their future — and their children’s, too.
In part, they have their parents to thank, at least when it comes to setting aside money for the kids.
“We got some money from their grandparents that we’ve saved and put into stocks so it can compound … and by the time they’re adults, they should be in pretty good shape,” says Bob, 35, who works in the tech industry, has an engineering degree from UBC, and writes about saving and investing on his blog Tawcan.com.
“Hopefully, it can kickstart their retirement.”
Or help them buy a home. Or help pay for university.
The financial burdens faced by children as they enter adulthood can take a heavy toll, but a recent study shows it is not just millennial-aged adults who are struggling. Often their parents are, too.
According to a survey commissioned by the Financial Planning Standards Council (FPSC), aging parents are even putting their own financial goals on hold to help their children.
Dubbed in a FPSC media release “Failure to Launch,” the research revealed about one-third (33 per cent) of boomer-age parents are delaying, or will delay, retirement because they are helping their children with post-secondary costs.
The Children and Financial Dependence survey also found about the same number (32 per cent) indicated helping their millennial children with post-secondary costs is slowing, or will slow, their ability to pay off debt.
“We were actually shocked by those numbers,” says Kelley Keehn, a personal finance educator and consumer advocate with the FPSC. “We didn’t think they would be nearly that large.”
Yet it’s more than just helping out their kids with post-secondary costs, says Lana Gilbertson, a Vancouver-based licensed insolvency trustee at MNP, Canada’s largest insolvency firm.
“It’s often also a whole host of kinds of assistance they are providing.”
In fact, MNP’s recently published results from its Consumer Debt Index point to families struggling with expenses in general.
While about a third (32 per cent) of B.C. households are not confident they could pay for education costs, an even larger percentage — 37 per cent — is uncertain they will have enough just to meet all their bills in the next 12 months.
Credit Counselling Society president Scott Hannah says people of all walks of life are facing debt trouble, but a growing number of the agency’s client base are boomers helping their adult children.
The problem is “bigger than we think,” says Hannah who heads up the Vancouver-headquartered non-profit that helps consumers manage and pay off their debt.
“It’s taking longer for adult children to land their first career position that pays them sufficiently that they are able to manage all of their costs without the financial support of their parents.”
Consequently, many of the agency’s debt counsellors are meeting more and more with parents who have children in their late 20s still living at home.
“Parents have expressed frustration as they realize that they will not be able to afford to retire when they originally planned to and will need to keep working for a much longer period of time.”
Despite the hardship, these parents want to help.
“A lot of the boomers I’ve talked to since this research came to light are saying, ‘Why wouldn’t we help?’” Keehn says. “But the question for them should be, can they really afford it?”
According to the FPSC survey, many boomer parents likely can’t. It found, for example, almost four in 10 (38 per cent) said their children are still financially dependent on them.
And one-third indicated these demands are putting a strain on their finances.
It wasn’t just millennial adult children needing help either. The online poll of 1,527 Canadians between July 31 and Aug. 3 also found 12 per cent of parents indicated their adult children 34 and older are causing them financial difficulties.
Gilbertson says many older clients, boomers included, have been making financial sacrifices for their children to the detriment of their own financial well-being for some time — often wrestling with “large amounts of debt for as much as 10 to 15 years” before seeking assistance.
“We’re meeting with parents — now boomers — who had been using credit to help meet household expenses and children’s activities when their kids were young,” she says. “And then this scenario continues on past the point where their children reach age of majority.”
She adds that those with a realistic plan to pay off debt within five years are likely “going to be OK.”
But parents facing a longer repayment on debt should consider getting professional advice.
“It doesn’t mean they have to go bankrupt,” she says. “They can talk to a licensed insolvency trustee or a professional with an accredited non-profit credit counselling organization about what they can do.”
For young families, like the Lais, all of this suggests they should start saving as soon as possible if they plan to help their children with costs like post-secondary schooling, Hannah says.
“Ideally, start an RESP when your kids are young and contribute to it monthly,” he says about the registered account, which attracts a 20 per cent grant from the federal government for contributions up to $2,500 annually.
“Encourage family members like grandparents to also contribute on birthdays and at Christmas.” No need to tell the Lais, however. While they have been saving the grandparents’ gifts for their children in an open, taxable account, the Lais have been making contributions to an RESP using the Canada Child Benefit — a federal program providing parents with a monthly stipend for children under age 18. They then top up the contributions with their own money to reach the maximum.
Lai says it’s a sacrifice, but a worthwhile one.
“My parents helped me with school, so it’s something we want to do for our kids too.”
We were actually shocked by those numbers. We didn’t think they would be nearly that large.