TORONTO, ONTARIO--(Marketwired - Dec. 16, 2015) - BMO Wealth Management today released a report titled "The Family Bank - a source of comfort for everyone," which examines the financial support that Canadian parents provide their children aged 18-34 and how this support is impacting their own financial well-being. The report also compares the financial support parents received when they were young adults themselves with the support today's young adults currently receive.
According to the report, Canadian parents with children aged 18-34 are willing to make the following sacrifices in order to provide financial support for them, if required:
- Retire later than planned (50 per cent)
- Save less for retirement (33 per cent)
- Have a less comfortable retirement (32 per cent)
- Take on debt (22 per cent)
- Withdraw from their retirement savings (19 per cent)
The willingness of Canadian parents to make these sacrifices reflects the anxiety they have about their adult children's future well-being. They are most concerned that their children may have:
- Financial problems caused by debt (41 per cent)
- Difficulties achieving financial independence (34 per cent)
- Insufficient or lack of employment (31 per cent)
"It's no surprise that so many parents want to ensure their children succeed and live comfortably in adulthood," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Wealth Management. "However, when parents make their adult children's needs a priority, it may have a significant impact on their own financial situation and plans for the future, including retirement. A financial professional can help parents understand the long-term cost of the support they provide their children and ensure it is considered in a comprehensive financial plan."
New Generation, New Financial Plan
The report also found that almost half (48 per cent) of parents with children who are aged 18-34 said that they themselves as young adults received little to no financial support from their parents. This compares with just 20 per cent of adults aged 18-34 today who report the same thing.
"Times have changed and the way each generation reaches financial independence differs. Parents should assume that they will be providing more help to their children than they received themselves when they were transitioning into adulthood," said Mr. Buttigieg. "It's important for parents and their adult children to have open communication with each other about their expectations for financial support to avoid any misunderstandings. These conversations will also give children an understanding of the limits to their parents' resources so that they can account for this as they begin to take responsibility for their own finances."
BMO offers the following financial planning tips to parents:
- Teach children about money from an early age: Children may rely on financial support from their parents simply because they have not learned enough about money. An understanding of personal finances involves learning how to budget and establishing saving and investing before spending habits. This will help children learn to live within their means, rather than looking for a financial top-up to support an extravagant lifestyle.
- Invest in a Tax-Free Savings Account (TFSA): A TFSA can make savings more tax efficient and extend a parent's ability to use their resources to meet financial goals. Although the amount that can be contributed annually to a TFSA is limited, income earned in the account is generally not subject to any Canadian taxation.
- Consider income-splitting opportunities: Income-splitting strategies can help to increase the benefit available for children and dependent parents. Through the use of a family trust or a carefully documented prescribed-rate loan strategy, the tax cost on income can be legitimately allocated to family members in a lower income tax bracket.
- Leave a legacy of financial comfort: Parents can ensure that their wills provide for their children adequately. A joint insurance policy on both spouses that pays out a lump sum tax-free to the surviving spouse to supplement income or to support children who may be struggling financially is a good option.
If you would appreciate an opportunity to explore your possiblities and understand your course to share wealth with your family, contact Four Points Financial Solutions today at 1-866-235-0004.