Inflation and supply chain issues are putting affordability matters at the forefront for Canadians. People worry about the cost of childcare and entering the housing market. People planning for retirement or already in retirement worry if they have enough to live the lifestyle they hoped.
The Bank of Canada has warned that the low rates that helped buyers afford more are over. Homebuyers with low variable interest rates will see an upward trend in borrowing costs and increased payments. Canadians with stretched budgets may feel house poor or forced to sell because of high interest, inflation, and maintenance costs.
Findings from the 2022 FP Canada Financial Stress Index were released earlier this month. “More than 78 per cent of respondents say they have regrets of some sort and feel they could have made better decisions about their personal finances in the past. “
“Turning back the clock on financial decisions, if Canadians could go back in time and do things differently, 20 per cent would invest more, earlier, wiser; 19 per cent save more and start saving earlier; 13 per cent to spend less,” according to the report.
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To help take the pressure off, we often see the Bank of Dad come to the rescue. It’s a worrisome trend because most families don’t have a plan. Helping adult children comes at a risk of not having enough to retire and working longer. Parents must put their financial future first, and they need to have a plan that helps show they will not run out of money in their retirement years.
Such a plan helps prevent stress. Mom and dad will not have to worry about becoming a financial burden, possibly on those same kids. Children in dual-income families have decades to earn wages and build a career of increasing wages and paying off debt.
Of course, the Bank of Dad (and Mom!) wants to help, but they also need to protect their retirement and money. They do not want to have to worry about not having enough to enjoy their envisioned retirement.
Try not to borrow from the Bank of Dad, but if you do, have a plan that helps you today while not harming their retirement.
Consider delaying your home purchase to allow you to make a larger upfront payment and shorten the amortization, saving you thousands on borrowing costs.
Buy a smaller home or think about joint ownership: instead of your forever home, think about the return on capital your parents would have enjoyed had they kept the money for their retirement or as a joint owner.
Again, stretch out your mortgage amortization to help keep payments more manageable.
These are only a few of the strategies families can consider. The important thing to look at is your overall cash flow: do you need to have that something now, or can you save and wait before making the purchase.
But if you do borrow from the Bank of Dad, make sure you clearly understand expectations. A little effort up front, asking the right questions, and having an exit plan for you and your parents can make a difference. It helps everyone get on the same page, know what’s expected, and helps to avoid surprises or stress.
Vaneesa Cline is a Financial Advisor who has worked in the financial services sector since 2004. She has a Bachelor of Communications Studies from the University of Calgary, holds the Professional Financial Advisor (PFA) and Certified Health Insurance Specialist (CHS) designations and has her own practice.
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