Nearly half of Canadians are banking on an inheritance to meet their financial goals. What are the dangers?
Special to the The Globe and Mail – By Gail Johnson
Counting on a lottery win is disastrous financial planning, but nearly half of Canadians are banking on another kind of windfall when they look to their financial future. Forty-four per cent are expecting an inheritance, according to a recent Edward Jones poll.
That kind of life ring apparently can’t come soon enough, with 83 per cent of the 1,500-plus Canadians surveyed saying they haven’t achieved their financial objectives because of hindrances such as high cost of living, low income and insurmountable debt.
While there may be comfort in knowing that a cash gift is in their future – whether it’s through a living inheritance or a will – the financial planning industry agrees that Canadians should be careful about incorporating that into a realistic, sound financial plan.
Investor Economics projects that roughly $1.1-trillion in personal wealth will be transferred from one generation to the next in Canada between 2018 and 2028. The average inheritance in Canada, according to a 2014 BMO survey, is just under $100,000...
In addition to dealing with the embarrassment, young people slated to receive money need to get ready for that, says fee-only financial adviser Ngoc Day of Vancouver’s Macdonald Shymko & Co. Ltd. Those who plan to use it for housing should stress-test potential mortgage payments to make sure they are not buying too much house, particularly if interest rates were to rise.
“Ultimately, you’re carrying the debt,” Ms. Day says. “I’m encouraging both parents and the kids to say, ‘This is not the Bank of Mom and Dad.’ The people receiving these gifts should be prepared to say ‘Can I afford to do this?’ Is this the right time to do this?’...