Hello, I'm Kelley Keehn. It used to be that once their children entered the working world most parents were largely done supporting them financially. But the working world has changed, and a growing number of young people struggle to get by—turning to Mom and Dad for help.
Whether it’s a request for ongoing support or a one-time loan to help buy a house, parents can be put in a difficult, even heartbreaking situation. Here to help you decide what to do is Dr. Moira Somers, a psychologist who specializes in money issues. Welcome, Dr. Somers.
Dr. Moira Somers: Thank you.
So should parents consider lending their adult children money?
Dr. Moira Somers: Kelley, there's lots of ways in which money can't make us happy but one of the ways in which it can make us happy is by allowing us the opportunity to give to causes and to people that we care about. But that decision about whether to give money to your adult children has a huge it depends hanging over it because of the big differences that exist between and within families.
So, if you do take that step and decide to gift or loan your child some money, what precautions should you take?
Dr. Moira Somers: Well the very first filters through which this decision has to be put is can we indeed afford this? Could we be okay ourselves as the parents if this loan, for example, were not paid back? So, if the answer to that is no, then the conversation would need to go in a different direction. But there are other filters too like how does this make me feel? Am I feeling pretty stressed out or resentful about this? Is this really going to fundamentally change our relationship, and again, that can be time for a pause in making the decision. A third one has more to do with the characteristics of the child—is this one in a series of bail-outs that doesn't seem to be ending? Does this child need a different kind of help other than perpetual support? It is harder for kids today than it was twenty years ago—they've got a lot of student loans. There are many differences. Housing prices as you know are crazy in a lot of centres so it's a different landscape. But still, there are some fundamentals. Everybody has to be able to live within his or her means. And it's a really important thing for adult children to be able to navigate that landscape themselves and to be able to bring their lifestyle in accord with what they can afford.
A really difficult conversation when someone is thinking about getting money is the prenup. A really difficult conversation might be having something in writing because that adult child might go to marry someone later or if they passed away God forbid and there were estate issues there. What do you suggest as kind of making the whole process a little bit more formal perhaps?
Dr. Moira Somers: I do recommend formalizing the process in the event of a loan for a couple of reasons. One of which is it really signifies that this is a commitment and it's every bit as important and perhaps some people might believe even more important to honour a contract to your parents as it would be to honour one to a bank. It keeps everybody on their best behaviour. Those discussions really help to keep emotion out of it—the kind of heightened emotionality that doesn't help these discussions.
And you talked about that emotion - does it help to bring in a professional?
Dr. Moira Somers: I usually agree that they consult with their own CFP® professional just to make sure that they really can afford this. That third-party acts as a chamber of sober second-thought to make sure that the emotionality is taken out of the decision, or that the wrong kind of emotionality is taken out of the decision. I think that it's also really important to introduce your child to a CFP® professional and to make sure that he or she has a CFP professional so that the good habits are being developed and that there's a solid plan in place.
Now, what if a parent really truly cannot afford to make that gift or to take out that line of credit even though they want to help their child? What do you suggest there?
Dr. Moira Somers: Whether they can afford it or not, it's their decision to make, and certainly it often paradoxically makes it easier to say no if there's just no decision to be made. If you can't afford it, you can't afford it. There's more than financial capital that exists within a family. There's human capital and there is emotional capital and parents have other resources including introductions they can make, for example, but "no" on the financial front doesn't mean that it's "no" on the emotional front. And then all of those other ways in which you build confidence in your child and let them know that you're there for them.
It's been really great advice Dr. Somers. Thank you so much for joining us.
Dr. Moira Somers: Thank you, Kelley.
You can locate a CFP professional near you at findyourplanner.ca