We seem to be approaching a milestone in the normalization of parental financial support for adult children.
The narrative to date has been about parents digging into their savings, or going into debt, to help adult kids with home down payments, rent and other living costs. Now, I’m starting to hear anecdotes about adult kids asking their parents for money in the form of an early inheritance. The latest comes in a blog post by a financial planner. He writes about an exchange on social media where someone relates how his adult kids are asking for their inheritance now.
Providing inheritances early is common enough that there’s a term for it – giving with a warm hand. For parents of means, there’s a lot to be said for this approach to estate planning. As an example, you can help your adult children get into the housing market and watch your grandkids grow up there.
But early inheritances are a niche thing only. Many parents will need all or most of their savings to cover their costs through the various stages of retirement, including long-term care for the latter stage. Parents, don’t underestimate the value to your adult kids of being financially independent through your retirement. In a recent Carrick on Money survey, 62 per cent of adults supporting aged parents financially said the reason is that these parents either did not save enough for retirement or ran out of money.
In today’s world of inflation and expensive housing, there’s definitely more pressure on parents to help their kids financially. Here are some notes on what to say if you’re asked by your adult kids for financial help you don’t feel comfortable providing:
– Your father/mother and I appreciate how much financial pressure there is on young people these days – houses are expensive in relation to incomes in many cities, and mortgage rates are high compared to where they’ve been in the past 10 to 20 years.
– We had financial challenges of our own that we had to work through to afford a house and save for retirement. It’s normal to have to fight and work hard for what you want.
– People are living longer and it’s possible we will spend 25 years or more living off our retirement savings. We don’t want to be a burden on you.
– When we die, whatever is left will go to you and your siblings in an arrangement we think is fair. That’s how inheritances have worked for ages.
Families should handle these discussions in their own way, but a good general rule would be to exercise caution in criticizing adult kids if they ask for an early inheritance. There is tremendous pressure on young people to own houses and be financially successful. Some can’t see a way forward without parental help.
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Q: How can I give money to my daughter and her fiancé for a home purchase and protect it in case of divorce?
A: From our archives, an article headlined: How parents can keep down payment gift safe when couples split.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
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