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Many younger Canadians have been priced out of the housing market, leading to an increase in parents helping their children purchase a home in recent years. Add rising inflation and interest rates to the mix, and parents are supporting adult children financially even more.
The Globe on Mail’s Carrick on Money newsletter ran an informal online survey recently that drew in more than 3,000 participants. It showed that 91.5 per cent of parents say they provided some level of support to their offspring.
Specifically, 37 per cent of parents are helping adult kids with grocery costs, almost 25 per cent are helping with rent, 10 per cent are helping with mortgage payments, and almost half are providing random cash infusions. This level of support could have significant implications for the cash flow of aging parents.
Globe Advisor editor Pablo Fuchs spoke with Stephanie Holmes-Winton, founder and chief executive officer of CacheFlo Inc., in a recent LinkedIn Live webinar about how advisors can help clients and their children embrace cash flow planning.
What impact have you seen on parents’ cash flow plans from helping their adult children?
When I ran [a financial advisory] practice, the number one contributor to adults carrying debt closer to retirement was financial support of adult children. The next most common factor was divorce and, after that, upgrading their primary residence multiple times over their working lives.
Anyone carrying debt closer to retirement is probably also not contributing [to their retirement savings] at the rate they should be. With the rising cost of homes, even with the compression of housing prices recently … it’s still not an affordable range for many people.
So, without the ability to manage their own cash flow, adult children are often left with no other way to get a down payment to make homeownership even possible. They’re leaning on those adult parents who have done a little better than they did.
What can advisors do to help set both generations on the right path?
There are a couple of things we could do. One, parents can always lead by example. The first thing advisors should do is have conversations with clients in this position about their cash flow and how giving extra funds to a child may affect it. Because, in some cases, it’s not going to hurt them at all. And if that’s what they want to do, great. But we should be able to tell them if that’s not the case before they go ahead and do it.
The other thing I would encourage advisors to discuss with clients who are supporting adult children, for any reason, is to have conditions for the adult child to receive the extra funds – just like any other funds we get in life. With our salary, the condition is we do the work. With any of our retirement benefits, the condition is we contribute.
Advisors should be encouraging parents … to set the condition for their adult children of having a cash flow strategy in place. Come in and talk to the advisor. That’ll help create a bond across the generations, which is good for everybody.
It will also give the advisor the opportunity to make sure the adult child makes the most of those resources, so that they’re not asking for any more than they ever need. And that parent can feel confident that not only have they given them some fish, but they’ve taught them how to fish for themselves.
- This interview has been edited and condensed. The entire interview can be viewed here.
Must-reads from Globe Advisor this week
Why it’s important to prepare inheritors for what they will be receiving
Communicating estate plans – from future inheritances to executor and power of attorney appointments and other end-of-life wishes – can be delicate and difficult for clients, whether it’s because of family tensions or an understandable discomfort with death. But advisors say there’s significant value in helping clients communicate their wishes to their children or other inheritors. Kelsey Rolfe explains how advisors can help navigate discussions.
Why wealth managers should focus more on future millionaires to sustain long-term growth
Advisors should be targeting more investors before they reach high-net-worth individual (HNWI) status to grow and diversify their businesses for the long term, a new report says. The Capgemini World Wealth Report 2023, released on June 1, says not enough wealth management firms focus on people with less than US$1-million in investible assets – investors it notes are “ripe for taking” if offered a better experience. The report classifies HNWI as people with more than US$1-million in investible assets, not including primary residences. Brenda Bouw provides more details on this report.
From self-care to charity: What are the best ways to use a tax refund?
Many clients receive tax refunds because they maxed out their registered retirement savings plan (RRSP) contributions, received child care credits or overpaid on quarterly instalments. According to the CRA, Canadians who filed their taxes in 2022 and were owed a refund for the 2021 taxation year received an average of $2,053. Now that April has come and gone – and the Union of Taxation Employees strike is behind us – what are advisors telling clients to do with their tax refunds as they start popping up in bank accounts? Kira Vermond finds out.
Why this portfolio manager has hiked his cash position amid stubbornly high inflation
Money manager Anish Chopra of Toronto-based Portfolio Management Corp. doesn’t love having one-fifth of his growth portfolio in cash right now, but believes it’s the best option while waiting to see what happens with inflation and the broader health of the economy. While inflation has eased in Canada and the U.S., Mr. Chopra says it still remains “a significant issue” for the economy. Unlike some market watchers, Mr. Chopra doesn’t expect interest rates to fall in the coming months, and he wouldn’t be surprised if they inched higher in the near term. Hence, the higher cash holdings. Brenda Bouw finds out what he’s buying and selling.
What you and your clients need to know
Great-West Life selling U.S. wealth manager Putnam to Franklin Templeton in deal valued at US$1.8-billion
Canadian insurer Great-West Lifeco Inc. is off-loading U.S. wealth manager Putnam Investments to investment giant Franklin Templeton in a deal valued at US$1.8-billion, a fraction of what the insurer initially paid for the operation. The two asset managers announced Wednesday that Franklin Templeton will initially pay Great-West US$950-million to US$1-billion in a combination of cash and stock. Franklin Templeton will issue 33.33 million shares to Great-West at closing and US$100-million in cash six months after closing. Clare O’Hara has more details on this deal.
It’s time to get creative in solving the housing affordability problem
There’s an idea that could make sense as many contemplate how the next generation will be able to afford a home. It could start with a new tax credit that came into effect this year and an ability and willingness to build on your existing property. Tim Cestnick shares the arrangement one family is considering.
Gen Zs more likely to invest than peers in U.S., China, survey says
Canadians between the ages of 18 to 25 are far more likely to be investors than their peers in the U.S., Britain and China, and parental influence may be a driving factor behind the trend, according to a new survey. The study from CFA Institute and the Financial Industry Regulatory Authority found that 74 per cent of Canadian Gen Zs held at least one investment. In comparison, only 57 per cent of Gen Zs in China had invested, followed by 56 per cent in the U.S. and 49 per cent in Britain. Mariya Postelnyak reports.
If Canadian firms are to compete globally, we must invest in digital skills now
There are roles today that no one could have envisioned 10 or 20 years ago, let alone studied for in post-secondary education. A recent study from LinkedIn reports that the skills needed for today’s jobs have shifted by 25 per cent since 2015, with that number expected to hit 50 per cent in the next four years as expertise in such areas as cybersecurity, artificial intelligence, cloud and quantum computing becomes in even greater demand. Dave McCann explains.
– Globe Advisor Staff