Helping your kids financially: 5 smart ways that won’t derail your retirement

Personal finance contributor Christopher Liew offers practical strategies for parents who want to support their children's financial futures without compromising their own retirement savings or financial stability. (Getty Images / Anchiy)

Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.

It’s easy for parents to let their children’s financial well-being weigh on their minds, especially given today’s high cost of living and current economic climate. However, even the best intentions can backfire if parents stretch their own budgets too thin or compromise their retirement savings while trying to help

The key is to find a healthy balance between helping your kids and continuing to prioritize your own financial future. Here are some tips that will allow you to offer support without jeopardizing your stability.

Young adults are struggling more than ever

Today, many young Canadians face increasing financial pressures preventing them from becoming fully independent and building long-term security for themselves.

For example, a late-2022 report from Statistics Canada reported that homeownership rates for those aged 25-29 dropped from 44.1 per cent in 2011 to just 36.5 per cent in 2021. Now, nearly two-thirds of Canadians between 15 to 29 are renters. This means that the younger generation is stuck spending a higher proportion of their income on shelter costs, rather than being able to save and invest.

Financial strain is also showing up in credit behaviour. In the second quarter of 2024, Equifax reported that one in every 17 Canadians aged 26 - 35 missed a credit payment, compared to one in every 23 for the overall age groups.

• Why so many young Canadians can’t find jobs

Tips for helping your children without derailing your own future

Given the financial challenges faced by many young adults today, it’s easy to understand why parents would want to go out of their way to offer a helping hand. Here are some ways that you can continue to help your childfinancially, while still keeping your own finances in order.

1. Keep responsible drivers on your auto insurance policy

The cost of auto insurance for self-insured young adults under 25 is astronomical, since drivers in this age group statistically get into more accidents, representing the highest risk group to insurance companies.

One of the easiest ways to help them financially is to keep them on your family insurance policy, which can significantly reduce the monthly premium they pay for their portion.

The only caveat here is that they need to be responsible drivers. If they’re irresponsible and are frequently getting into accidents or receiving traffic violations, it can cause the whole family policy premium to increase.

2. Offer personal loans instead of gifts

One-time gifts can be immensely helpful, but they can also be taken for granted. Often, a better choice (and one that also teaches your kids more financial responsibility) is to offer them a loan with a modest interest rate, better than they could get from the bank.

Formalize the agreement with a written plan outlining repayment amounts and deadlines. This keeps both sides accountable while also reinforcing the importance of financial discipline.

3. Offer allowances over lump sums

If you have a student or a young adult just trying to get their foothold with a new career, consider offering them an allowance, rather than large lump sums of money.

Young adults tend to be more careless with their money, and giving them a large sum of money at one time can often lead to them overspending or making impulsive purchases. Offering a small monthly allowance to help with targeted bills or living costs will help them better manage their finances. Just make sure that the allowance you offer fits into your own budget.

4. Use your good credit to co-sign

Interest rates today are incredibly high, especially when it comes to auto loans. Young adults with limited credit history who are purchasing their first car may face interest rates as high as 12 per cent or more. When applying for an apartment with no credit history, they may also face an exorbitant security deposit.

Using your good credit to help them co-sign for their first vehicle or get into their first apartment is a great way to reduce your child’s financial burden and help them build a solid foundation.

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That being said, co-signing them can also negatively affect your credit if they miss payments. Before you co-sign, be sure that you can fully trust them to make their payments and that they understand the gravity of having their loan linked to your credit.

5. Help them make connections and communicate

In today’s digital age, many young adults still are unable to hold a professional conversation with a potential employer. Whether you’re in a position or not to make direct financial contributions to your child, one of the most valuable things you can teach your child are communication skills, like how to:

• Clearly speak without slang, mumbling, or fast-talking
• Write a solid resume
• Respond to a professional e-mail
• Leave a compelling voicemail
• Network for success
• Dress for success and communicate professionalism

Once they learn these vital skills, you can continue to help them by putting them in touch with friends, co-workers, or acquaintances who may be able to help them along with their own careers.

Set clear limits and goals

Rather than reactively offering help or providing open-ended support, it’s important to set clear limits and goals for the financial aid you provide. This ensures that your support is sustainable, not taken for granted, and encourages your child to be financially responsible.

Before you offer help, take some time to calculate an amount you can realistically afford, what expenses you’re comfortable contributing toward, and how long you’ll continue to provide support.

Ultimately, any financial support you give your children should be within your free-spending budget and shouldn’t significantly impact your regular retirement contributions or get in the way of you being able to pay your own bills.

More from Christopher Liew:

• My favourite personal finance hacks you might not know about
• Is your mortgage renewal going to shock you? What Canadians need to know
• Moving abroad? Make sure you’ve at least done these 5 things