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Bank of Mom and Dad

How you can help adult children without jeopardizing your own financial future.

With the cost of housing and education continuing to rise in Canada, it’s more difficult for younger generations to get established. While average hourly earnings (adjusted for inflation) rose approximately $3 between 1977 and 2016, average housing prices have more than doubled, and significantly more than doubled in many of Canada’s urban centres.[1] The cost of a university education has almost doubled just since the early 1990s,[2] with tuition rising by 3.7 per cent annually over the past decade.[3]

It should be no surprise then that the number of adults aged 25 and older living with a parent has almost doubled since 1995.[4] In fact, two-thirds of Canadian parents are helping their kids financially, and one in five are assisting with larger purchases, such as a home or post-secondary education.[5]

It’s entirely understandable that parents want to help their children – but does helping leave parents at a disadvantage? Consider that, according to a report by the Financial Planning Standards Council, one-third of parents helping their millennial children pay for post-secondary education say they will have to postpone retirement, and 32 per cent of parents indicate that the financial strain is preventing them from paying off debt.[6]

Access your home equity instead of liquidating your savings

If you are a homeowner and a parent who intends to help your adult children financially, there may be a better solution available to you. Rather than dipping into your retirement savings, why not use the equity in your biggest asset – your home – to provide some financial flexibility and enable you to help fund large purchases for your children?

There are financial products that allow you to combine your mortgage, savings and income together in one multipurpose account. Any income you deposit can instantly reduce the amount you have borrowed (your mortgage or any other loans you might have). You reduce your loan interest costs until you need the income for your monthly expenses. When you combine your income and debt in one account, you save much more in interest costs than you’d usually make in interest earnings. And the best part is you can access that money whenever you need it (up to your borrowing limit).

If you have adult children who need financial help from you, make sure that your needs are met first – or you may be the one asking for help from your children later on. Unique financial solutions are available that can provide access to your home equity, and prevent you having to liquidate other investments.

Speak to your advisor today to figure out if an all-in-one account is a suitable solution for you.

© 2019 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value.

[1] https://globalnews.ca/news/3854264/boomers-gen-x-millennials-cost-of-living-canada   

[2] Ibid.

[3] www.theglobeandmail.com/investing/personal-finance/article-parents-financially-supporting-thirtysomething-kids-its-happening

[4] Statistics Canada, “Family matters: Adults living with their parents,” The Daily, February 15, 2019, www150.statcan.gc.ca/n1/daily-quotidien/190215/dq190215aeng.htm (accessed May 8, 2019).

[5] www.huffingtonpost.ca/2018/12/13/canadian-parents-financial-help_a_23617433

[6] http://fpsc.ca/docs/default-source/FPSC/children-and-financial-dependency-fpsc-leger-study-2017.pdf