Helping kids financially, without going too far

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It’s hard to share financial wisdom with your children, and even harder to know when to offer help and when to pull back.

Give too much support, and they can become dependent. Take away financial support too soon and you can prevent them from getting on their own feet. Give too much and you could be left without sufficient funds for your own retirement.

You need some guidelines. And the first should be to make sure you don’t give away money you can’t afford not to have for yourself.

Loan if you must

If kids come to you for help with accumulated credit card debt, it may help to be a bit skeptical. While card interest rates are high, it’s often possible to get debt consolidation loans at better rates.

Parents generally shouldn’t co-sign on these loans, because it can give the impression that kids can step away from the obligation if they feel overwhelmed.

For those who do choose to help, a loan generally teaches the financial responsibility lesson better than a gift. A loan, at an agreed-upon rate that’s better than what they’d get at a bank, creates a sense of urgency for them to repay.

Plus, parents can let children prepay with no penalty to encourage them to get their savings act together.

Don’t borrow to help

Another trap parents sometimes enter is the reverse, or second, mortgage that allows them to tap the equity in their homes.

While there can be many good reasons for taking these loans – such as needing funds for unanticipated major home repairs or for serious, uncovered healthcare needs – they may not be the right way to help the kids.

Help toward real goals

If parents sincerely want to help kids get ahead, a place to start is by setting aside money for university costs (so they can graduate as close to debt-free as possible) or to help them with a down payment on a first house.

Both of those gifts help children build wealth, and can provide a lesson that’s more valuable than simply handing out cash.


CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.


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