So, you've given a lot of thought to your retirement. You opened a registered retirement savings plan (RRSP) when you first started working and are very pleased with the amount you have saved and how it has compounded over time. You've maxed out your tax-free savings account (TFSA) every year. You budgeted for yourself and possibly a spouse. But what happens if your adult kids are still living at home with you?
You are not alone--not by a long shot. Many parents are feeling the squeeze as they try to financially support their adult children. In fact, a 2015 survey by the Canadian Imperial Bank of Commerce (CIBC) found that 66% of parents' savings were impacted, so if you ever hope to be an empty nester it's important to plan ahead.
Help Your Kids Start Saving Early. When your kids are born, open a Registered Education Savings Plan (RESP) for them. The funds will grow over the years and you will have money for their post-secondary education. There are funds also that the government will match. While post-secondary education isn't a guarantee for employment, it will provide your kids with a great head start.
Develop Habits of Saving Gift Money. If your child is lucky enough to receive monetary gifts for birthdays or holidays I recommend opening a TFSA or other savings account for them and watch the money grow. I did this for my son and he was 8 years old before he found out that there was money in his cousin's Christmas card! I explained to him that his grandparents loved him just as much and had given him money as well but we were putting it away for him. He was okay with this. These funds eventually helped my son when he was without work for a period of time.
Ensure Your Kids are Financially Literate. It is important to speak with your kids about money, savings, debt, and basic money management. And remember, they learn from what you do as well as what you teach them. It is important to teach them that money has to go into the bank before it can be taken out of the "machine in the wall." Take your young child into the bank to make the deposits into their bank account — let them see and experience the process for themselves.
Incorporate Budgeting Practices. Once they have part-time jobs, help them to establish a budget as part of teaching teens about money. Make sure they include a savings plan as well as a spending plan. They need to know that they shouldn't spend every dollar they earn. Even young people need to plan for a rainy day.
Teach Cost of Living Life Lessons. Once your kid(s) are working, living at home for a while can help them save money for first and last months' rent or even a down payment on their first home. But don't be the "Bank of Mum and Dad." They need to manage their money responsibly. As such, don't be afraid to charge them room and board so they understand the true costs of living. If you don't need the funds, don't tell them that — put the money into savings and give them the funds when they are moving out or buying their house. Look at it like a forced savings for your kids that will help prepare them for adulthood.
Use the Room and Board to Cover Your Costs. If you do, in fact, need the funds to support your adult children, don't feel guilty about using their room and board money to cover their costs. After all, you are helping them but shouldn't put yourself in a tough position. I had friends who felt guilty about charging their daughter room and board costs, yet while she took 5-star vacations to Mexico, her parents were lucky to get away for a weekend.
This lesson will help your kids learn to plan and save for what they want while still being responsible and ensuring that they are not a burden to you as you plan for retirement.
Set Limitations. Be careful about using your retirement savings to buy cars, vacations or homes for your kids. Those funds are important to your future well-being. And some kids don't put Mum and Dad at the top of their "Debts to be Paid List".