Helping your kids on your own. It’s tricky.

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Mary and I knew exactly how we could financially assist our kids into adulthood. But now that she’s gone, does that change things?

In past blogs, I wrote at length about the pros and cons of helping out adult children financially. Most are at a turning point in their lives; weddings and new homes in their future, but not yet established financially. So, what to do? You can read some of my thoughts here:

These blogs weren’t based just on my professional expertise, my personal experience as a dad with three adult (or near-adult) kids played a role too.

They were also written before Mary’s death. And while I don’t think that fundamentally affects my stated positions, it did bring me a new perspective. But first, let’s go back to our plans before Mary’s passing.

Mary and my original plan to help our kids

As our kids grew up, their mom and I made two big financial decisions for their future:

  • Early inheritances. We decided to provide each child with $50,000 during our lifetimes to be used for wealth building (education, investments, new home, etc.). That $50,000 would increase over time if our retirement projections allowed.
  • No-strings-attached wedding gifts. Mary and I promised each child an undetermined amount of cash as a wedding gift. They could use it as they want, for wedding expenses, a big honeymoon, whatever. (Unfortunately, at the time weddings seemed so far away that we never decided how much.)

Would I do the same thing, now that I’m a widower?

I’m not 100% sure. That might seem cold or selfish, the thoughts of a grieving spouse – but hear me out. I’m just being practical.

First of all, a promise is a promise. All three received their early inheritance. The oldest funded the down payment of a home, the second put theirs towards student loans and our third, 19 and living at home while pursuing an undergraduate degree, says she doesn’t need the money. (Her words, not mine – subject to change!)

As for the wedding gift, my eldest is marrying in the fall. How much will it be? I don’t know yet, but if you have any ideas, let me know! No word on the other two yet, but I expect wedding bells will ring before I ever expect it.

Here comes the practical part.

As a widower – and a financial advisor – I’m now rethinking things.

Parents always want to support their children in any way possible – whether spiritually or financially. That’s just natural. Once one parent is gone, there may be the desire to bring family closer, which could manifest itself in giving your adult children money soon afterwards.

My advice? Think twice. When Mary died, my brain was in a fog. I was too overwhelmed to make anything close to a wise financial decision. At the same time, money wasn’t a priority for my kids – they just lost their mom.

Give yourself a year, minimum, before making any major financial moves. Let the fog of grief clear, so the right decisions can be made.

Okay, you’re ready. What to do?

First of all, ask yourself: Are you a Hoarder or a Cash Cow. Don’t know what I’m talking about?

A hoarder believes in tough love. Children should earn their own money and they’ll get what’s left over when I die and no sooner.

A cash cow widow or widower gives their kids money due to guilt, family pressure, or the need to control their children through money. This “generosity” can backfire, and can often make the widow or widower dependent on their kids for support.

Neither is ideal in this situation.

What you need to be is a caring – but practical – parent. Can you actually afford to help financially? If so, how, why and when?

Going by today’s market, a logical choice would be helping with their first home. But….

Their first home. And the Bank of Mom & Dad.

According to the Toronto Real Estate board, the average selling price of home in the GTA in February 2022 was $1,334,544 (up from $1,044,957 a year earlier). How many adult children have $270,000 at the ready for a 20% down payment?

Realistically, none. That’s why there’s the Bank of Mom & Dad.

An October 2021 CIBC study entitled: Gifting for a Down Payment—Perspective estimates that 70% of down payments come as gifts from parents.

But what about when it’s the Bank of Just Dad – or Just Mom?

Let’s say the average gift in the GTA is between $130-200k. If a typical widow has two kids, they need between $260 -400K of excess funds to gift toward a home purchase.

With two incomes and two sets of corporate and government pensions, the decision becomes easier. Much of that goes away when a spouse dies. That makes me far more cautious about giving money away. What if I get sick and can no longer earn? What if my health requires a support worker because I have no wife to take care of me? These are the things that are on my mind.

Don’t do anything without a financial planner.

I recommend hiring a financial planner. Run multiple retirement projections using conservative assumptions (that you’ll live to 100, future inflation vs. current rates, lower investment returns) before deciding if gifting is something you can afford, how much you should provide, and when’s the best time.

A few things to consider before gifting – first the “human side”:

  • Gifts could delay your retirement plans
  • Gifts might create tension among siblings
  • It may create “entitlement dependence syndrome”

Now for the financial side:

Funds become the children’s property and may be subject to their creditors and lawsuits

Kids may be unable to afford the carrying costs of the home (mortgage, utilities, taxes)

Of course, there are ways to show support beyond helping with their first home. You can always:

  • Contribute to your adult child’s RRSPs or TFSAs
  • Start a RESP for your grandchildren’s education

I’m a Dad first, a Bank second.

Having finally put all this down on paper, I now know the biggest, best gift I can give my children. For me to stay healthy, financially independent, and engaged with life – and with my family.

They’ve already lost one parent. I’m here to provide, always – if not necessarily financially, then absolutely emotionally.

In other words, “Live well, stay rich and never retire.” Your kids’ futures depend on it.

The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.

Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.

Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
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source https://richarddri.ca/helping-your-kids-on-your-own-its-tricky/

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