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Grandparents are increasingly paying for their children and grandchildren’s everyday expenses, and it’s causing them to worry about whether they’ll have enough money left over to remain financially comfortable in retirement, according to a new poll by Royal Bank of Canada.
The survey of 1508 grandparents aged 55 or older found that 21 per cent of respondents are financially supporting a child, and 30 per cent have provided money to a grandchild, sometimes for everyday living costs or for their education costs.
The poll found grandparents are increasingly expected to help with necessities, rather than discretionary spending, with 70 per cent saying their children expected financial help when they can’t cover costs.
Of the grandparents that provide money to their children, 54 per cent said they sacrificed their own savings to provide that support. More than half of respondents also said they have made or will make significant lifestyle changes to continue supporting their children and grandchildren, while one-third of respondents were concerned that they would run out of money for their own costs while supporting their offspring.
Financial advisers say Canadians need to start accounting for financial aid to younger generations in their retirement planning, as expectations for help from parents and grandparents become commonplace.
At the same time, they say older Canadians need to have conversations with their kids, grandchildren and financial advisers early so they can outline expectations with their family and prevent themselves from having their own financial well-being at risk when providing support.
“Having an idea of your income sources, your outgoing expenses and cashflow is critical, both for now and in the future,” said Craig Bannon, director of RBC’s Financial Planning Centre of Expertise, adding that providing support is also likely easier for grandparents who haven’t retired yet.
He said that 54 per cent of grandparents who financially support their children do so in monthly payments, meaning that it is not a one-and-done scenario. The average yearly payment to adult children in the survey was just under $7,000.
Aaron Hector, a certified financial planner based in Calgary with CWB Wealth Management, said the decision to support your children and grandchildren isn’t always made with proper consideration of the long-term impact it’ll have on one’s own finances.
“So many of these decisions are made emotionally and without the proper analysis around whether someone should actually be providing support to begin with or are they going to be putting themselves in an unfortunate circumstance in the future,” Mr. Hector said.
“That part of it is really important for financial planners to provide context.”
Mr. Hector said he currently has two clients that are giving financial support that they know might be unmanageable, but they’re doing it anyways.
He said those couples might end up needing to make difficult decisions in their own life, whether that means downsizing earlier, or downsizing when they hoped to keep their original home in retirement.
In other cases, parents might feel guilty for supporting one child, but then not gifting money to another child who is self-sufficient. When a client asks Mr. Hector if they can afford to give $100,000 to one child, he always asks if they’d be able to give the same amount to all their children, or emotionally justify only supporting one child.
Mr. Hector said roughly one in five of his clients are currently supporting their children or grandchildren – a number that is similar to the RBC polls findings.
Thirty-four per cent of respondents to the RBC poll also said they didn’t know how much money they had gifted to their adult children and grandchildren, underscoring the need for grandparents to make a financial plan to better understand the impact that financial support will have on their retirement, Mr. Bannon said.
He said that earlier discussions about their children’s financial situation and one’s own capacity to help their offspring can ensure that your retirement is safe.
“If you’re covering essentials for younger family members on an ‘as needed’ basis, it can be challenging to keep on top of these amounts and how they are affecting your cash flow and savings,” said Mr. Bannon.
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