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Cash Crunch

How credit unions are offering advice for sandwich-generation families feeling financially squeezed.

Liz Forrest knows what it feels like to feel squeezed, both personally and financially.

The 45-year-old North Vancouver resident has an eight-year-old daughter with a demanding schedule: school, soccer, gymnastics, birthday parties, and other appointments. Forrest also has an 85-yearold father in fragile health who lives alone nearby, and can no longer drive. She wants and needs to take her dad to all of his medical appointments, to get groceries, and to do his banking.

“It’s time consuming,” says Forrest. “I’m feeling like I’m being pulled in different directions and not always able to give everyone what they need.”

Working part time isn’t possible for Forrest right now, given these personal pressures. Luckily, her spouse has a well-paying job, and Forrest is able to work on call as a special education aid. She has some savings to dip into, as needed, but lives frugally today — at least a lot more than she used to.

Stuck in the middle

Cartoon illustration of two sandwich breads with nothing between themForrest is a member of what’s described as the “sandwich generation,” people caring for both parents and kids, and feeling a bit squished. Statistics Canada estimates more than eight million Canadians, or about 28 per cent of the population, are caring for a friend or relative with a long-term health issue, while also balancing their own busy lives.

An in-depth academic study of more than 25,000 Canadian employees had similar findings. It showed 25 to 35 per cent of respondents reported having to balance work, caregiving and/or childcare. Of those in the caregiver group, 60 per cent are in the sandwich generation, says the report called Balancing work, childcare and eldercare: A view from the trenches, written by Carleton University professor Linda Duxbury and the University of Western Ontario’s Christopher Higgins, in partnership with Desjardins.

This pinch is a growing issue among Canadians thanks to a handful of factors: demographics, as the baby boomer generation enters its senior years; people living longer, with the average life expectancy 82 for Canadians today compared to 77 in 1990 according to the World Health Organization; and more women having kids later in life.

What’s more, those kids are living at home longer. Statistics Canada says about 42 per cent of young adults ages 20 to 29 live in their parents’ home, compared to 32 per cent in 1991 and 27 per cent in 1981. That is putting even greater pressure on the family budget, especially for those in the sandwich generation.

When you add the cost of health care for aging seniors, including long-term care facilities that can cost several thousands of dollars a month, it’s no wonder so many people caring for both kids and parents are feeling crunched.

“Those in the sandwich group were more likely to say money is tight in their family, indicating that eldercare is more likely to be a financial strain on families who have children still living at home,” says the Duxbury-Higgins report.

People in the sandwich generation are also more likely to miss work and pass on a higher-paying promotion, which can have implications for their long-term financial future. This demographic shift is changing how people spend and save for retirement.

One in four Canadians in the sandwich generation worry about not being able to pay for their children’s education because they need to financially support their parents, according to a survey from Credit Canada and Capital One Canada. Of those, about 40 per cent said they may have to borrow money from family and friends. The vast majority, 82 per cent, of sandwich generation Canadians said they aren’t prepared, or not sure they would be, if they had to support their aging parents. Two thirds are going into debt to support children and aging parents, the report also shows. What’s more, 55 per cent said they expected to retire later than they had hoped in order to fund their own retirement.

Balancing the bread

Many in the sandwich generation are trying to balance the competing pressures of what money to set aside for the future, for who, and when. That includes saving for their kids’ education, their own retirement, a rainy day fund, and if they need to pay, or at least pitch in, to support their aging parents.

“Being caught in the middle is one of the biggest wealth eroders out there,” says Paul Shelestowsky, senior wealth advisor at Ontario’s Meridian Credit Union (276,855 members, $11.1 billion in assets).

“It doesn’t seem to matter how well off the [sandwich generation] parents are — whether they are just getting by or if they are fairly wealthy — they want to help their kids out,” he says. “On the other side, they also feel obligated to help their parents out.”

A Pollara survey conducted for BMO in 2014 shows people age 45 to 64 that fall into the sandwich generation had saved just $258,000, or about $560,000 less than what they felt they needed for retirement.

“It doesn’t seem to matter how well off the [sandwich generation] parents are… they want to help their kids out” – Paul Shelestowsky

With his clients, Shelestowsky tries to separate the emotional and the financial, which can be difficult for many to grasp.

“A lot of it is balancing the emotional message, with making sure the financial numbers work. It’s a huge challenge,” he says. “It’s those people caught in the middle that have the hardest time dealing with it.”

While it may sound selfish, Shelestowsky believes the parents need to look after their own financial future first.

“You can’t sacrifice your own financial well-being for the well being of others,” he says. “You might want to help your family out as much as you can now, but in 20 years down the road that might be your only source of income aside from OAS [old age security] and CPP [Canada Pension Plan]. Are you OK with that?”

Scott Evans, financial advisor at Blueshore Financial Credit Union (42,223 members, $3.1 billion in assets), agrees parents need to pay themselves first.

“Much like the oxygen mask in an airplane, which they tell you to put on your own face first, we always stress to look after yourself first as far are retirement planning goes,” Evans says.

He recommends clients then build a broader financial plan, taking into consideration short-term and long-term goals, such as putting money into a Registered Education Savings Plan, or setting aside future funds for a parent’s long-term care facility.

Even families with enough wealth to fund retirement need to develop a plan to make that money last, he says. This is especially important given the demographic changes where people are living longer, and given the living and health care such as longterm care facilities.

Don’t keep the financial ingredients a secret

To help relieve the pressure and plan for the future, experts recommend those in the sandwich generation have a conversation with their parents and their kids about how the future may unfold.

With parents, the talk will be about their wishes if their health begins to fail as they age, and if they have the resources to cover the additional expenses.

“It’s a tough conversation for some people to start, but it’s so important,” says Sophie Salcito, an investment adviser at Vancity (504,383 members, $19.7 billion in assets). “If you don’t start it early, you’re going to have to have it later when you’re in the squeeze,” which could be even more challenging.

“There are a lot of people who don’t have a plan. It’s easier to do nothing” – Scott Evans

Salcito acknowledges it’s tough to plan ahead, especially for the unknown. For example, you don’t know if one of your parents will develop a long-term illness, such as cancer, Parkinson’s or Alzheimer’s.

She often recommends products, such as longterm care insurance, that can help cover any additional expenses. That said, too often seniors don’t consider buying the insurance until they’re older and ill, when it’s much more expensive. Adult children should talk to their parents about plans for managing their money while they’re still in good health, Salcito says.

At the same time, Salcito recommends parents start talking to their kids about the importance of saving money at a young age. This could help them become financially independent sooner. The discussions, as the kids get older, should also include expectations of when they should be leaving the house and fending for themselves financially.

Studies have shown adult children who rely on their parents are preventing them from retiring sooner. An Angus Reid survey commissioned for CIBC shows two-thirds of parents are dipping into their nest eggs to support their adult children. That includes free room and board as well as groceries, cell phone bills, and other household expenses.

“There needs to be an end date,” Salcito says.

A recipe for the future

The sandwich generation, perhaps more than any other demographic, can benefit from a comprehensive financial plan that includes saving, investing, and maybe different types of insurance products to help protect their wealth long term. Advisers also strongly recommend having an up-todate estate plan for both the sandwich generation and their parents.

“Your financial plan should cover various needs to protect your wealth and livelihood,” says Evans.

The biggest mistake people often make, in hindsight, is not having a plan, which Evans warns can cause both emotional and financial stress down the road.

“There are a lot of people who don’t have a plan. It’s easier to do nothing,” he says.

What many of his clients have found helpful are multi-generational meetings with financial advisers, where parents and adult children can talk about their needs, goals and plan for the future.

The key is having an open conversation and dialogue, which can be tricky and often tense where families are involved. Still, if families can tough it out, the squeeze may be a lot less painful.

“If you can find a solution everyone is comfortable with, it can be very rewarding,” Evans says. ◊

5 tips credit unions can share with the sandwich generation

  1. Teach your kids how to save and spend money wisely, starting at a young age, to help them become financially independent sooner.
  2. See if you qualify for the caregiver tax credit, or other government programs or incentives to help ease the financial burden.
  3. Talk to your parents early about protection, such as long-term care insurance, establishing a power of attorney, and finalizing their will. Make sure you also have this in place to protect your own kids.
  4. Be prepared for financial emergencies, including yours and that of your kids and or your parents. How will you replace your income if you need time off to care for someone else? Set aside some money, just in case.
  5. Don’t forget about your own financial needs, including saving for your retirement and ensuring you won’t be a financial burden on your kids later in life.