We’re in a new age of parenting where it’s common to support your children financially until well into their 30s.
A survey released Thursday commissioned by Royal Bank of Canada found that 96 per cent of parents were subsidizing children aged 18 to 35 and 48 per cent were still helping kids age 30 to 35. RBC raises the question of whether parents are helping their kids with money that should be going into their retirement saving, which is valid.
“It puts some pressure on people, financially,” said Rick Lowes, vice-president of retirement strategies at RBC. “It may mean people will end up working longer, and maybe that they’ll outlive their money or have health care expenses that come towards the latter part of their life that haven’t been accounted for.”
But there are broader questions here than whether people are putting their retirement at risk: Just how long are parents supposed to help their kids financially, and why is this even necessary?
Part of the story here is that the baby boomer generation has, as a group, done well career-wise and in the housing market. In the RBC survey, 88 per cent of the 1,004 parents of millennial children (aged 18 to 35) said they were happy to be in a position to help their children.
The average amount of help was $5,623 for parents of children aged 18 to 35, which doesn’t seem exceptional when you consider that it includes help with college or university costs as well as cellphone bills and living expenses. It’s been quite normal to help late teens and twentysomethings like this. But thirtysomethings?
The RBC survey found that the average amount of support to this age group from parents was $3,729. That’s a substantial amount for an age bracket that should have progressed to the point of financial independence from mom and dad.
Some will say that young adults are in this position because they are spoiled, entitled and lazy. They should talk to some parents of millennials. In the survey, 86 per cent of parents said they feel it’s very difficult for young adults starting out today to make ends meet, and 53 per cent said their children are struggling to become financially independent.
We should be staggered by this – more than half of young adults today are struggling to pay their own way. What’s going wrong?
Mr. Lowes said expensive houses and rents in some cities are a factor. The average amount of annual parental financial help in British Columbia and Ontario was $6,818 and $6,694, respectively. Vancouver and Toronto are the country’s most expensive housing markets, and surrounding cities are pricey as well. In the other regions, the average ranged from a low of $3,941 in Atlantic Canada to $4,977 in Alberta.
The rising cost of a postsecondary education may also be a reason why it takes longer to become financially independent. Statistics Canada numbers show that average undergrad tuition rose by 3.7 per cent annually over the past decade or so, while inflation was 1.7 per cent. In the RBC survey, 69 per cent of parents said they provided financial support for education.
The cost of living today is higher as well, notably because of technology such as smartphones. The RBC survey found that 58 per cent of parents helped their children aged 18 to 35 with cellphone bills. Quebec was an outlier – only 46 per cent of parents there helped pay cellphone bills.
A bank such as RBC makes huge amounts of money by selling investments, so it’s natural for it to be raising concerns about parents diverting money to their adult children at the expense of their registered retirement savings plans. Roughly one-third of parents in the RBC survey said that subsidizing their adult children has or would affect their retirement savings and delay retirement plans.
Worst case, today’s parents who overextend themselves to help their adult children become dependent on those kids later on for financial help. Familial financial obligations get ever more complicated in the new age of parenting.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, February 28, 2019