What Happens When the Bank of Mom and Dad is Too Generous?

The Unforeseen Consequences of Overly Generous Parental Aid

Parents have always been a lifeline for their children in times of financial need, acting as the so-called “bank of mom and dad“. However, there are times when this act of kindness can lead to serious financial difficulties for the parents themselves. This raises the question: What happens when the bank of mom and dad is too generous?

The Role of Parental Support

At some point in their lives, most people have relied on their parents for financial aid, whether it’s for student loans, phone bills, or help with a down payment on a house. Parents, naturally, want to give their children every chance to succeed and often willingly provide extra cash to their children.

Generational Wealth Gap

Parents today are keenly aware of the generational wealth gap between them and their children. The cost of living has risen significantly since they were young, making it harder for the younger generation to manage their finances. This reality often prompts parents to extend financial support to their children.

A Real-Life Story of Over-generosity

Take for instance the story of Cynthia (name changed for anonymity), a widow in her 60s living in Ottawa. Cynthia works part-time and receives a widower’s pension. She owns a modest home with a mortgage and has three adult children living independently.

One of Cynthia’s sons bought a car for his family but struggled to afford the payments. He turned to his mother for help, which she agreed to give him. In her bid to assist her son, Cynthia ended up accumulating a significant amount of debt.

The Impact of Debt

Cynthia’s financial circumstances began to worsen as she used credit cards to help her son meet his car payments. This action led her into a spiral of increasing debt. Soon, she started receiving calls from her credit card companies about falling behind on minimum payments.

Cynthia was torn between her financial predicament and her fear that if she stopped helping her son, she might lose contact with her grandchildren.

Seeking Debt Help

After hearing about Bankruptcy Canada on the radio, Cynthia decided to seek help. She was aware that there were options out there to help her reduce the financial burden but was unsure about what they were.

Finding a Solution

During Cynthia’s first meeting with the trustee, he assessed her situation and helped her understand that she could no longer afford to give any more money to her kids. This was a hard truth for Cynthia to accept, but with the Trustee’s support, she was able to have that difficult conversation with her son.

The Role of a Licensed Insolvency Trustee (LIT)

Her Trustee explained to Cynthia about the consumer proposal option. A consumer proposal is when an LIT negotiates with creditors to lower the percentage of debt that needs to be repaid. This solution can provide immediate debt relief and help individuals regain control of their finances.

Avoiding Bankruptcy

Cynthia was determined to avoid declaring bankruptcy.

With the consumer proposal, Cynthia went from paying over $800 a month in credit card payments to a monthly payment of $250, reducing her debt load by 70%.

Lessons Learned

Cynthia’s story serves as a stark reminder of the potential repercussions of being overly generous as a parent. It underscores the importance of setting financial boundaries and understanding the long-term implications of our financial decisions.

Tips to Prevent Overspending on Children

For parents grappling with the challenge of providing too much financial support to their children, here are some practical steps:

 

  • Open a dialogue about finances with your children. Discuss the family’s financial situation openly and honestly.
  • Set clear boundaries on financial help. Make sure your children understand these boundaries and the reasons behind them.
  • Encourage financial independence. Teach your children about budgeting, saving, and investing.
  • Seek professional advice if you find yourself struggling with debt.

 

In conclusion, while parents’ desire to help their children financially is commendable, it must be balanced against their own financial security. After all, it’s essential to remember that parental support shouldn’t come at the cost of one’s financial stability.

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