My child is engaged. Do I pay for the wedding?

Late last year my colleague Carmen McHale popped by The Blunt Bean Counter to answer a question we hear a lot: Should I pay for my child’s university education?

This week I asked Carmen to come back and share her thoughts on whether parents should pay for a child’s wedding. Paying for a wedding brings up different questions from those parents ask about paying for university. But the two topics share a core theme: when parents need to cut the financial cord with their kids.

Almost everyone who has children tackles the issue at one point or another. Carmen deals with it here and wraps up with some final thoughts on teaching your children about financial responsibility.
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By Carmen McHale

Weddings challenge parents to make a bunch of difficult decisions in advance of the happy occasion. One of them is finances.

Many cannot fathom not paying for their child’s wedding, at least in part. But a wedding can easily cost upwards of $50,000, so paying for even half of that can set your retirement back a year or two.

Let’s say you agree to pay half the cost – $25,000. What does that do to your retirement? If you could invest that $25,000 at 4.5% over 20 years, you will lose $60,000 in retirement savings. (This is assuming after-tax dollars.) If you are struggling to save for retirement like most Canadians, that $60,000 pays for one year of retirement. By covering half of your child’s wedding, you may have to retire a year later. Now consider that for two, three or four children – the costs begin to add up.

In practice, parents generally follow one of these courses of action, moving from covering no costs of the wedding to covering the entire cost. Parents:

• Do not cover any costs, because they believe their children should stand on their own two feet
• Do not cover any costs, because the wedding does not fit their budget
• Assist child with the costs
• Pay the full cost of the wedding and then ask their child to repay some of the outlay using wedding gifts
• Pay the full cost of the wedding because their bank account can foot the bill
• Pay the full cost of the wedding, even though it stretches their finances, because we love our children and want to help them in any way we can. (Just remember that this may affect your retirement.)

Deciding whether to pay for a wedding brings a host of financial complications that don’t stay in the family. If parents do pay – which set of parents should pay? And how should they divide the cost? What if one set of parents doesn’t have the same financial means as the other, or has completely different views about paying? These matrimonial nuances have spurred the imaginations of sitcom writers and generated a range of formulas to divide the financial hurt.

In the end, while easier said than done, parents need to do their best to separate their emotional concerns and love for their children, from their financial concerns when paying for a wedding; or else, the financial pain may be felt in retirement.    

Teaching financial independence to your children

My husband and I are blessed with a 13-year-old daughter, and she has been learning how to manage her money since she was six (that’s what happens when your mom is a financial advisor).

We used to give her a weekly allowance in loonies and toonies so she could learn how much a dollar would buy. She has now graduated to having her own bank account and has developed the skills to save for larger items, like a new headboard for her bedroom (the proudest moment for her mom).

It is important to teach children to make their way in the world – after all, that is what we are tasked with as parents. Part of this teaching should include finance, and it should start at a young age. Make children responsible for something – their allowance is just one example.

To help older children become financially literate, first come up with a budget and make them responsible for it. If that doesn’t work for them, help them understand they have two options: spend less or earn more. Either way, the bank of Mom and Dad is closed. This lesson in financial responsibility will hopefully keep them from a lifetime of dependence.

The decision of whether or not to pay for a wedding finds its roots in habits modeled and learned in childhood. If you plan ahead, the conversation about finances with your newly engaged child will be just one in a chain of chats – and if you have taught them how money works, they likely have thought about this already. This will help avoid the surprise that can add strain to the parent-child relationship.

BDO Canada LLP senior wealth advisor Carmen McHale is based in Calgary and helps entrepreneurs and professionals create comprehensive wealth plans.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Should I pay for my child’s university education?

Numbers are typically the focus of retirement planning. Will I have enough of a nest egg to support myself? When do I withdraw my retirement savings? Should I start receiving my Canada Pension Plan benefit early, before turning 65? These questions are easily answered by an advisor — preferably one who is good with financial planning software.

But advisors and clients often overlook the softer side of retirement planning, where human relationships and feelings come into play. One common issue on this front is adult children and their continued financial dependence on their parents – especially when deciding how to pay for a child’s post-secondary education.

This week BDO Canada LLP senior wealth advisor Carmen McHale explains why this common dynamic can be so fraught from both an emotional and financial point of view – and how to tackle it.

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By Carmen McHale

Most parents I work with have a hard time saying no to their children – their car payments and cellphone bills are covered by Mom and Dad well after the children are working and bringing in their own money. Parents pay for the wedding, help with the down payment on the house, pay for the master’s degree that never seems to end. They often ask: Should I keep my kids on the family payroll?

A recent survey by FP Canada found that more than a third of Canadian parents with children 18 or older have helped their children pay their rent.

The problem with this is twofold: first, your kids do not learn responsibility and are unable to budget for themselves because they have never learned the value of a dollar. The other problem can be much serious – you have spent so much money on your kids that you have put your own retirement in jeopardy.

As an example: The same FP Canada study reports that while less than 10% of parents with older children have used retirement funds to help them purchase a home, almost 40% of parents with children under 18 expect to postpone retirement to help their children purchase a home.

A report from Merrill Lynch also has some stark data points for parents to review. The study found that parents are spending twice as much on their adult children as they are putting away for retirement. Overall, it said, 79% of parents continue to give money to their adult children age 18 to 34.

What about the master’s degree? Most parents I work with want to pay for their children’s education, but covering costs for more than the four years of undergraduate studies is another story.

Multiple children, multiple tuition bills

I frequently run across a situation like this: the oldest child has just finished a seven-year post-secondary program and now the younger sibling wants to go to dental school (which would bring to eight the tally of years in school after graduating high school). I will assume for purposes of this discussion that any RESPs will be used for undergraduate or have been exhausted already.

Couples are often not prepared for these expenses, and now there is a dilemma. They have already covered all expenses for their first child, which could be upwards of $350,000 including living expenses (yes, $50,000 per year for seven years). Parents often feel guilty if they don’t treat their kids equally – what if they can’t afford the second child’s education? They have already paid the full way for the sibling. What does the couple do? They will be delaying their retirement by several years by funding the full bill. Will Mom and Dad have to delay their retirement? Even with this knowledge, they feel they are in a situation where it is too late to change course – family harmony is at stake.

Parents can handle this type of situation in a few ways. Sometimes they can guarantee loans for the dental school costs for the child. They can also equalize the extra school costs in their will or by reducing their financial assistance for the first child in other areas – like their wedding or house purchase.

Two overarching rules will ease the challenge. First of all, plan your approach in advance. And second, commit your resources responsibly. There is nothing wrong with pitching in to help our kids financially as they move through key stages in their life. Housing costs continue to rise, especially in many urban areas, and some courses of studies end up burdening students with significant debt loads. But parents also need to reality-check their financial support – and make sure it won’t put their own retirement at risk.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

The Best of The Blunt Bean Counter - The Taboo of Asking Family Members for Money

This summer I am posting the best of The Blunt Bean Counter blog while I work on my golf game. I actually just returned from a golf trip to Bandon Dunes in Oregon. It was pretty awesome and I may post a future blog on the trip.

Today, I am re-posting a June 2018 blog on the taboo of asking for money within a family. Which, to say the least, is a very touchy subject.

The blog will return with new original material starting on September 16th.

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Asking for money

The taboo

Probably one of the most frowned upon money taboos is asking for money, whether as a loan or a gift. This can be a child asking a parent for money or surprising to some, a parent asking a child for money. This taboo can encompass everything from a child in an abusive marriage who is dependent upon the abusive spouse’s income and thus cannot leave the marriage, to a parent too proud to admit they do not have the necessary funds for retirement and are reverse mortgaging their house to survive.

Broaching the money taboo by the party in need requires a leap of faith that their family will not judge their current financial or living situation and not consider the request a money grab.

I have broken down this taboo into three categories, which is explained in greater detail in this second post:

1. Need
2. Seed
3. Greed

Reasons for the taboo

This taboo is all about our pride and possible embarrassment. Most of us are brought up to be self-sufficient and responsible for our own financial well-being. To ask for money is admitting we have failed at being self-sufficient, at least in the short-term. We may be embarrassed because we are asking a parent or a child for money, but in many circumstances, the issue that has caused the necessity to request money is embarrassing.

The reasons a child may ask a parent for money range from the fact they have lost their job, to they have a substance abuse or gambling problem, to they are involved in an abusive marriage, to they require money to start a business, to finally, they just want money to enjoy themselves.

A parent may need money because of poor retirement planning, physical or medical issues, elder abuse and economic situations beyond their control, such as the low interest environment we have faced for the last several years.

Some of the excuses I have heard for children not asking their parents for money include:

1. They will think me a complete failure.
2. My parents told me to get a profession as a fallback; now that my business has failed I don’t have a fallback. I will just be asking for a “told you so."
3. My parents worked their whole life for what they have; I have no right to infringe upon their retirement earnings.
4. My parents will think I am just trying to “steal their money from them."
5. My parent’s perception of me will be shattered.
6. The reason I need money is personal, I don’t really want to discuss it with my parents.
7. My father regaled me with stories of how he was given nothing from his parents and was self-made. He will not be able to understand that I am not from the same cut of cloth as he.

Some excuses I have heard for parents not asking their children for money (these have been few and far between):

1. I am my son’s/daughter’s role model, if I ask him/her for money he/she will think less of me.
2. I have told my children their whole life to not spend more than they earn and to save for retirement. How can I now ask them for money?
3. I can reverse mortgage my house and they will never know until I pass away that I had financial issues.
4. My children have their own job and family issues; I do not need to burden them with mine.
5. I lived through the war with very little; I can do it one more time.
6. I have lived to provide my children a better life than mine; I will not do anything that impacts that objective.

As noted above, I had a second post on this topic, if you wish to read on which is located here.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

The Taboo of Asking for Money Within a Family – Part 2

Last week in part one of this two-part series, I suggested there are three reasons why people may ask their family for money. They are: need, seed and greed. Today I discuss these three reasons in greater detail.

Need - I Really do Need the Money

Some examples of need-based requests by a child are as follows:

a) They are in a bad and/or abusive marriage and need money to get out of the marriage.
b) They need money to help buy a home.
c) They lost their job

Parents may ask their children for money for the following reasons:

a) Medical issues
b) Elder abuse by another child or another individual
c) Poor retirement planning
d) Poor fiscal environment

One of the hardest decisions a parent will have to make is; the decision to gift or loan money to a child that is in true need of the money. These are factual requests in which the need for money can be substantiated. These requests leave no question that the money has a direct intended use and will not be used for personal gratification or discretionary purchases by your child.

The weight of one of these requests is often compounded by the fact emotional issues are attached to your child’s request for money. In the end, the decision to provide financial assistance must be determined in large part by a cold hard analysis of your financial situation and your financial wherewithal to provide assistance, especially where the request could jeopardize your retirement. I discuss this is further detail below.

Requests by parents (or more likely, non-requests, but you discover a need) tend to be more readily accepted. This is just simply because the person is your parent and typically you will want to repay them for everything they have done for you. But as with a child, you still need to consider your financial position before making any emotional decision. 

Seed - Psst, I have a Great Idea

Some examples of where a child’s request for money is seed based are the following:

a) They require money to start a business

b) They require money to expand an ongoing business.

c) They require money to go back to school to upgrade their education

Requests for seed money can carry significant risk. Often money advanced or loaned for a seed money request cannot be repaid. These requests can create significant internal turmoil for parents. Many parents have always told their children to think for themselves and to reach the stars. When a child wants seed money, it often revolves around the child starting a new venture or investing in a business. These requests are often gut wrenching for the parent, as they struggle with whether they a) can afford to lend of gift money to their child and b) often the parent has preached initiative and grabbing the brass ring when the chance presents itself and now they may be roadblock to following through on that initiative and finally c) parents are often aware many business start-ups go bankrupt, so practically it is a huge risk to loan or gift seed money for a new business.

Greed - I am a Money Leech, I Admit It

Some examples of where a child’s request for money is greed based are the following:

a) Need money for a vacation.

b) Need money for personal vanity (such as cosmetic surgery)

c) Need money for a discretionary purchase such as a large screen TV or car.

Requests for greed money are often rejected by objective parents, but many parents will do anything for their kids, even if it is detrimental to their financial future and for non-necessities. Many of these greed requests fuel the notion that some children just see their parents as a bank. Many of these same children are often characterized as the type of children that will hover over your body waiting for you to die. While this view is extreme, it is not without basis. We all have observed children who have had fractured or little or no relationships with their parents over the years, suddenly arrive on the scene asking for money or when their parents take ill.

Separating Emotion from Finance

The decision to acquiesce to a request for money from a child or a parent needs to be analyzed as a purely financial decision. Can you afford the financial request or not?

Where it is determined you have the financial wherewithal to grant a request for money, you must then make an emotional decision as to whether you feel the request is warranted or of such an urgent nature you need to seriously consider granting the request. Where you have the financial ability to provide funds, the decision can easily be rationalized as an early inheritance or money you can afford to lose. The issue is these cases is often more philosophical, do you make the child stand on their own or assist them?

The more typical and gut-wrenching cases are where it is determined you do not have the financial wherewithal and you must decide if you are you willing to jeopardize your retirement to assist a child financially.

Let me speak to my Accountant and Financial Planner

Any parent or child considering granting a request for money to a child or parent needs to review the issue with their accountant and/or their financial planner or engage such. Your accountant or financial planner has the ability to be detached and provide objective advice from both a financial perspective and emotional perspective.

For some people, money is never the issue. But for most, it is a significant issue, even where you have saved enough for retirement. Your accountant or financial planner can run several financial scenarios that will consider the impact of making a loan/gift on your retirement funding and allow you to review the financial consequences of advancing the money (assuming you will never see it back). For many people, the answer will never be entirely clear from a financial perspective, as the elephant in the room is always longevity. It is difficult enough to plan for retirement when you don’t know how long you will live, but that decision is further complicated when you must reduce your retirement nest egg for an unexpected cash request from a child or parent. However, at minimum you need to review the impact of making any significant gift upon different retirement scenarios.

Surprisingly, the few times where I have been involved in these type situations, it is often not just my financial expertise that is of value, but the fact I can relay my experience in other similar situations. As I am not emotionally attached, I can coldly state on a no-names basis what I have that observed in other similar family situations.

You mean I Must Speak to my Lawyer also?

If it is not bad enough I have already told you to pay an accountant and/or financial planner for objective advice, you likely will also need to spend more money to amend your will to account for the gift or loan. Your lawyer may do this via a Hotchpot clause, see this blog post on the topic or a simple promissory note.

The Tugging at my Heart (Purse) Strings is too Much

Some people will realize after meeting with their accountant or financial planner that they cannot afford to assist their child or parent. They often feel guilty and/or sad they cannot assist; or in some cases dejected they did not achieve a greater level of financial successes such that they could assist their child or parent. But, for financial reasons, the discussion ends as it is clear they cannot afford to assist their child or parent.

Yet, over the years, I have seen several parents assist a child financially when they cannot afford to do so. I call this the "blood is thicker than water” scenario. These parents cannot stand to see their child suffer financially or health wise and despite the objections of their accountants, friends, family etc. make the gift or loan. There is not much you can do or say in these circumstances, except try and help assist the child or parent to reduce costs where plausible and to review if there are any ways to make up for the loss of retirement funds. In the end, their child’s or parent's well-being far outweighs their concern for their own financial well-being.

There you have it, my discussion on asking for money. I still think someone should write a book on the topic, it just will not be me.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Taboo of Asking for Money Within a Family

In May of 2017, I noted that I had given up on writing a book on The Taboo of Money. In that post I noted I would be posting part of the second intended chapter on "Asking For Money: The Intergenerational Communication Gap". Today and next week I post an edited down version of this intended chapter.

Asking For Money: The Intergenerational Communication Gap

The Taboo!

Probably one of the most frowned upon money taboos is asking for money, whether as a loan or a gift. This can be a child asking a parent for money or surprising to some, a parent asking a child for money. This taboo can encompass everything from a child in an abusive marriage who is dependent upon the abusive spouse’s income and thus cannot leave the marriage, to a parent too proud to admit they do not have the necessary funds for retirement and are reverse mortgaging their house to survive.

Broaching the money taboo by the party in need requires a leap of faith that their family will not judge their current financial or living situation and not consider the request a money grab.

I have broken down this taboo into three categories, which will be explained in greater detail in the second post:

1. Need
2. Seed
3. Greed

Reasons for the Taboo

This taboo is all about our pride and possible embarrassment. Most of us are brought up to be self-sufficient and responsible for our own financial well-being. To ask for money is admitting we have failed at being self-sufficient, at least in the short-term. We may be embarrassed because we are asking a parent or a child for money, but in many circumstances, the issue that has caused the necessity to request money is embarrassing.

The reasons a child may ask a parent for money range from the fact they have lost their job, to they have a substance abuse or gambling problem, to they are involved in an abusive marriage, to they require money to start a business, to finally, they just want money to enjoy themselves.

A parent may need money because of poor retirement planning, physical or medical issues, elder abuse and economic situations beyond their control, such as the low interest environment we have faced for the last several years.

Some of the excuses I have heard for children not asking their parents for money include:

1. They will think me a complete failure.
2. My parents told me to get a profession as a fallback; now that my business has failed I don’t have a fallback. I will just be asking for a “told you so”.
3. My parents worked their whole life for what they have; I have no right to infringe upon their retirement earnings.
4. My parents will think I am just trying to “steal their money from them”.
5. My parent’s perception of me will be shattered.
6. The reason I need money is personal, I don’t really want to discuss it with my parents.
7. My father regaled me with stories of how he was given nothing from his parents and was self-made. He will not be able to understand that I am not from the same cut of cloth as he.

Some excuses I have heard for parents not asking their children for money (these have been few and far between):

1. I am my son’s/daughter’s role model, if I ask him/her for money he/she will think less of me.
2. I have told my children their whole life to not spend more than they earn and to save for retirement. How can I now ask them for money?
3. I can reverse mortgage my house and they will never know until I pass away that I had financial issues.
4. My children have their own job and family issues; I do not need to burden them with mine.
5. I lived through the war with very little; I can do it one more time.
6. I have lived to provide my children a better life than mine; I will not do anything that impacts that objective.

Next week I finish this discussion looking into why people may ask for money.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.