A topic that often comes up with my clients in their 50s, 60s and 70s is that of assisting their grown children (aged 20-40) financially.
There are many good reasons to help out your adult children these days, especially if you can afford it. Whether it is assisting with a down payment on a home, helping out with a grandchild’s RESP or just a well-meaning gift of money to help with bills, it’s a common refrain that those approaching retirement want to help. So is there a problem?
I find there can be a few challenges with well-meaning gifts of cash within a family.
4 things to consider before sharing your nest egg:
1. Can the parents afford the gift they are offering? I’ve come across generous people who are thinking more about their adult children’s short-term financial challenges than their own upcoming retirement. This could spell doom where the one gifting becomes the economically dependent one just down the road – not a good result. I liken this situation to the emergency event in the sky where parents are asked to put their own oxygen masks on first, before assisting their children. Make sure you can afford the gift, first and foremost.
2. If you have more than one adult child – can you afford to keep gifts even? When raising young children I don’t believe ‘fair’ should always mean ‘equal’ treatment. But as adults, I like equal treatment when it comes to money. Helping out one to the detriment of another (even when one appears to be in more need), could have some unexpected consequences. Don’t underestimate sibling rivalry, birth-order rights and in-law resentment upon hearing of a significant gift to one (think about ‘Joseph and his Coat of Many Colours’).
What might seem like a generous gift to someone in need can turn into broader family strife and years of broken relationships – not your intention, but people will be people. And what if the adult child who is doing well loses their job, or gets a divorce? Suddenly the one in need may change. What will you do? What can you afford to? How will these relationships be mended?
3. Are you creating ‘economic dependence’ among your grown children? A lot has been written about this topic. If you have an adult child whose cost of living is partially being funded by the Family Money Tree, it is possible you are robbing them of monetary independence – an important state for adults who want to achieve true contentment.
Learning to live within one’s means is an important part of maturing. Allowing your children to do this, without offering a bailout option will help them grow in their marriages, mature as adults and give them a sense of accomplishment they will never enjoy with well-meaning but frequent gifts.
4. Do you expect re-payment? What about an interest rate, if it is a loan? Will Thanksgiving Dinner taste the same when everyone is around the table and money is owed or payments are late or gifts have been unequal? What will your legacy be?
When money is given as an unexpected gift, with transparency, with an eye to fairness, and without expectations - it can be a wonderful thing. There is nothing wrong with enjoying giving away some of your wealth before you are gone, but beware of the risks and put appropriate thought to this aspect of your family legacy.