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.

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Book Giveaway and Financial Survey

I have been writing about financial and wealth trends for over six years. Today, I provide a link to a survey about how these trends are affecting you personally. I would appreciate it if you would complete this survey. To provide incentive (at least I hope it is incentive since you are reading my blog) I will giveaway five copies of my book Let's Get Blunt About Your Financial Affairs to those who complete the survey. The survey will take you between 3-5 minutes to complete, so it is not time consuming and you will have the opportunity to receive a summary of the survey. I would suggest the survey is most applicable to those in their mid-forties and older.

A discussion of some of these trends and why they are important is provided below by Jonathan Townsend, the National Wealth Advisory Services leader for BDO Canada LLP.

Canadians Feel Financial Strain From Different Directions

By Jonathan Townsend

Recently, the trend of Canadians providing multi-generational financial support has come up as an emerging issue. At a time when many of us should be preparing to retire peacefully, numerous people have signed up for additional financial obligations such as housing, education, and health care—not for themselves—but for their children or parents. This added burden, along with longer life expectancies is putting considerable stress on many Canadians.

In a recent Globe and Mail article, 44% of millennials expect to receive financial assistance from their parents to purchase their first home. Many of them consider home ownership a priority; however due to increased housing prices many cannot fund the purchase independently. Instead, millennials are relying on their parents to make home ownership a reality.

Conversely, the parents of baby boomers are living much longer. Many of them may have not saved enough or are facing unexpected medical conditions which require special care or assistance. Again, many Canadians, especially baby boomers are stepping up to the plate. They are taking care of housing and health care costs for their parents, which have considerable costs. In a recent study by CIBC, it is estimated that these costs average $3,300 per year for a caregiver, and amounts to an estimated cost of over $6 billion to the Canadian economy.

The added financial commitments may not have been part of many Canadians financial planning. The time, energy and money being used to support parents and children is putting a huge strain on funding many of our own retirements. Significant numbers of Canadians are nowhere close to hitting their targeted retirement nest egg because their investment returns have not been what was expected in large part because of the cost of financially caring for their children and/or parents. While research shows it is physically and mentally beneficial to work longer, many people need to work longer, out of financial necessity, to support the family and fund lifestyles and retirement.

For those lucky enough to have cashed in on sky-high real estate prices in some Canadian cities or for those who have received an inheritance, they have decisions to make regarding the net proceeds of downsizing or their inheritance and how much goes to their children or parents.

It’s admirable that many Canadians are taking care of their families’ financial needs but it may come at a cost. BDO Canada is exploring these changes and added expectations that we are facing to see how it is impacting our retirement and financial planning. We invite you to participate in this national survey, which will form a report outlining the key insights we uncover. Respondents will be entered into a draw to win one of five, Let’s Get Blunt about Your Financial Affairs books, written by Mark Goodfield.

Complete the survey now by clicking this link. Please note the book giveaway link is at the end of the survey and takes you to a different location so that your survey comments remain confidential.

Jonathan Townsend is the National Wealth Advisory Leader at BDO Canada LLP. If you have any questions, please contact him at 519-432-5534 or jtownsend@bdo.ca.

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.