Time for some confessions: Raise your hand if any of the following are true for you:
I have a credit card that my parents help me pay off
I have a joint bank account with a parent
My parents give me an allowance of money to help me pay for my life
My cell phone is on my family plan that is paid by my parents
I don’t have my own bank account, savings account, investment accounts, RRSP and TFSA
I’m still on my parents’ health insurance and other subscription services.
If this sounds like you, you’re not alone. 47.3% of Canadians adult children admit to receiving help from their parents. It is more challenging than ever for young people to begin to live independently. It is also more common and less taboo for a young person to rely on their parents, compared to earlier generations.
In fact, is it even that big of a problem to receive help from your parents? After all, parents get joy from providing for their children, right? That may be true, but consider a few of these numbers reported:
48% of Canadian parents in 2018 expect their retirement to be postponed as a result of providing financial support, compared to 41% in 2017 – so the dependency is rising.
Two-thirds of Canadians with adult children said that by helping their kids with post-secondary costs, they were prevented from paying off their own debts.
38% of parents are helping with small loans and cash gifts, close to 30% are subsidizing rent for their children and over 1 in 5 parents are helping with large expenses, including home purchases, education costs and vacations.
Why is this problem growing? Firstly, only a third of respondents to the survey said they’re even familiar with tax credits, grants and other forms of financial assistance that could help them. Secondly, the financial literacy of young Canadians is low. Even though children are managing their own money and bank accounts earlier than ever before, the knowledge they need to handle that responsibility is lacking. All of these issues come together to create the need for parents to step in and help financially. Want to stop the cycle, become independent and allow your parents to retire peacefully? Read on to learn how to cut the financial cord. Think of that scene from Friends where Monica makes Rachel cut up all of the credit cards that her dad pays for. Now think of us as your Monica 🙂
Step 1: Setting up your own bank accounts
Click here to find out how to choose the best bank for your accounts. Remember, aim for a no-fee or low-fee account and keep in mind the minimum requirements that exist. Many banks would love to have you as a client because data shows that people often are very loyal to their bank, so a bank will try to get you while you are young. There are also many incentives for new clients, including iPads, cash bonuses and more. Evaluate the value of the gift against how much you will be paying in fees before switching over. Set up online and app access in order to keep track of your spending and make the habit of checking your account daily or weekly.
Step 2: Getting your own credit card
Just like getting a bank account, your credit card is your next step to financial independence. There are so many to choose from, and you may have already encountered people trying to sell you credit cards. Not sure how to choose? Here’s a great resource to give you the lowdown on what to look for and to help you choose the best Canadian credit card for you. Not sure if you should get a credit card? Some people don’t believe in credit cards, citing a fear of over spending and getting into debt. If that’s you and you know it, more power to you, but recognize that you are giving up a lot. Credit cards, when used responsibly, allow you to build credit, get into the habit of paying off your expenses monthly, and access loyalty programs like points, cashback and travel benefits. Some property management companies allow you to pay rent and deposit via credit card, so those points can rack up fast! Either way, buying all of your new home items on the credit card will get you on your way. All of your automatic payments for utilities, bills and more require a credit card as well.
Step 3: Get to know your credit
When you’re renting, you might be required to share a credit score, or to grant access for your potential landlord to pull a credit report on your name. For these reasons, it’s very important to know your credit score and to maintain it well. Eventually, if you want to buy a home or access any other kind of loan, this will matter even more. Building good credit takes time. Click here for tips on how to build yours. Not sure what your credit score even is? Click here for a free credit score report.
Step 4: Build your budget
Find out the cost of your life by using this calculator! You might find you’re spending more than you can right now. If so, your budget will require some adjustments. Use our guide to identifying your overspending habits and how to improve them. Check out our blog here.
Step 5: Consciously uncouple
The key is to structure your life to be able to live on less than what you are earning. It doesn’t make sense to ask your parents for help to fund your bad habit of eating out or taking Ubers. Any other expenses they help you with, or that come directly out of their accounts need to be brought into your care or paid back in another way. Common culprits include cell phone plans, utilities, car or renters insurance, Netflix accounts and more. Sometimes it makes sense for a family to share expenses. For example, many families benefit from a family plan with their cell phones. If the overall cost is lower, that’s great! But it doesn’t mean it’s free. Find out how much your share is and budget to pay your parents for those amounts, or work out another arrangement. Maybe you trade cell phone bills for snow shovelling. A budget based on a bunch of freebies is unrealistic.
Step 6: Get smart with your debt
If your mounting debt is making it hard to become financially independent, there is a way to accept help from your parents wisely. If you are paying high-interest amounts for credit card debt or student debt, or even worse, if you are taking out payday loans to make ends meet, you could propose a plan to borrow from your parents and pay them a more reasonable interest rate. When you do need to visit the bank of mom and dad in a pinch, add structure around it. Create a contract with them, outlining what you are borrowing, why and how and when you will pay it back. They will have more respect for you, but more importantly, you will have more respect for yourself.
When it comes to family, most of us will have some level of dependence forever. Living in a more communal way, sharing expenses and taking care of one another is critical to thriving and makes our societies more resilient to challenges. The goal isn’t to minimize interaction, but to be as responsible and independent as possible so that you don’t get stuck in a rut of never launching into your own life.