When a family member asks for financial help

14 March 2019

Siew Mei bounced her new grandson David up and down on her lap. “He’s so cute,” she said to her daughter Zoe. “But it looks like he has been keeping you up at night.”

Zoe yawned. “Mum, it’s not just the baby,” she mumbled. “I’ve also been worried about our finances. Even with both our incomes, we are barely keeping up with the mortgage payments, baby expenses, medical check-ups &ncash; the cost of living in Singapore is really so high nowadays, and with David, we have to find child care arrangements for him and later look to move to a bigger place.”

“Yes, all this is so much more costly now, especially with property prices where they are. But I didn’t realise you guys had problems making ends meet.”

“I’m not complaining,” Zoe replied, “but there are definitely more expenses with the baby. At the moment, we’re okay, but I don’t know how we’re going to save for a bigger flat.”

Later that day, Siew Mei told her husband, Kok Cheong, “I hate that they’re dealing with so much financial pressure.”

“Why don’t we help them out with some expenses?” Kok Cheong suggested. “Maybe with the downpayment for a bigger flat?”

Siew Mei shook her head. “I don’t know. It’s not that I don’t want to help. But we’re both retired. We need to be careful with how much we spend.”

The Reality

The above fictitious scenario is actually quite common, albeit in different variations.

According to a 2017 survey by HSBC, 68% of Singaporeans would prioritise paying for their children’s education at the expense of their own retirement plans, while 66% of Singaporeans would prioritise their parents’ health and social care over themselves.

In fact, 45% of Singaporeans are still providing for their grown-up children (over 18 years of age) and 72% are financially supporting their parents. Many Singaporeans in this ‘sandwiched’ generation are thus finding it hard to have sufficient funds to retire well.

So, what can be done?

The bigger question, perhaps, is not whether or not to help out your family members, but what kind of help you should extend. Here are some things to consider:

How much can you afford to help?

Before you start thinking about giving your loved ones money, it is important to first assess your own financial situation. List down your liquid and fixed assets, as well as your current income and expenses. Look at your own progress towards retirement and other goals, and how you are funding those plans. See what discretionary expenses you can trim off and what other available assets you can bring to bear without compromising your ability to still pay your own bills and essential living expenses.

If all of this is too much for you, you can ask your trusted adviser to provide some guidance.

One of the worst things you could do is to give more than what you can afford and then later find yourself struggling financially – which would not only compound the problem but also choke off any future avenue for you to help your family members, not to mention run the risk of you needing to depend on them for help instead.

More Money, More Problems?

Think carefully about the implications of giving money to your family members. What would it be used for? Would it be going into a bottomless pit, such as paying off gambling debts or credit card bills for a family member who is still racking up more debt?

Sometimes, a well-meaning gift of money could have undesired outcomes. For example, receiving help with making a down-payment on a flat or house could encourage Zoe to then buy a bigger place, which her family may not be able to afford in the long run. Mortgage payments would be higher (especially when interest rates rise), and other home-owning costs would also increase.

However, offering non-monetary help or selective monetary help could ease some of the burden. For example, instead of sending the grandchildren to day care, grandparents could help out on some days to lower childcare bills. Grandparents could also help to contribute to long-term savings plans for the grandchildren to help fund their future education costs, or provide specific monetary gifts at significant milestones such as graduations or honeymoons.

How Much Do You Need To Give?

Very often, you would want to treat everyone equally and not be seen to favour one family member over another. Giving monetary gifts to one family member could mean having to do the same for the others. This could be a drain on your finances and is something that should be carefully considered as part of your overall financial plan.

Of course, this is easier said than done. As parents, you want to help your children out and also your own parents. It will not be an easy decision to make.

Important Points for Both Parents and Children

Parents: In order to help your children with their finances, it is critical to make sure that your essential expenses are already taken care of – through some form of cash holdings, annuities, CPF Life or investment portfolio. You also do not want to permanently injure your investment portfolio at the wrong time just so you can give out monetary gifts, as that could one day mean you having to ask your children for financial help.

Even if you have not yet received a request for help at this time, it would be prudent to start a separate long-term investment portfolio to meet such unknown and unpredictable expenses in future. It could also act as an emergency fund of last resort that you refrain from touching until there is absolutely no choice. You never know if you will need it sometime in the future. If all goes well and you are fortunate enough not to have to dip into this fund, it can form part of your legacy to your children or grandchildren.

Children: Young adults who are just starting out in their career and family face big financial challenges. However, as they have time on their side, following some of these simple steps can help to ease their future financial burden:

  • The Singapore government has a Child Development Co-Savings (Baby Bonus) Scheme (CDA) which is part of the Marriage and Parenthood Package. You should maximise the CDA contributions for your children. As the government matches contributions $1 for $1 (up to a certain limit), you should top up the account fully. In addition, CDA accounts earn higher interest and the funds can be used to pay for education fees, hospital and doctor fees, and optical services.
  • Start a simple regular savings investment plan to fund higher education expenses or give your children a headstart in life. With a time frame of at least 18 years or more from birth, your children have the luxury to ride out the market cycles and thus maximise their investment returns. A modest monthly contribution of $200 into an equity indexed return of 7% could give you around $80,000 at the end of 18 years.
  • Plan your budget. It may be tedious and tiring, but the importance of planning your cashflow cannot be emphasised enough.

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