According to a survey commissioned by Financial Planning Standards Council, four out of 10 Canadians plan to help their child purchase their first home, with some parents saying they would use money that would have otherwise gone to fund their retirement or reduce debt.
Kevin Cork, a Certified Financial Planner® professional with The Absolute Group in Calgary, puts this emotional decision in context. “Many people over 50 believe one of the ways to get their kids started in life is to help them buy a house. Your kids may have a half-decent income, but they haven’t been able to get a down payment together—that’s pretty common from what I’ve seen in my practice. On a general level, it’s an admirable gesture, but as a parent you should sit down with a professional financial planner to make sure it doesn’t negatively impact your own financial situation.”
A CFP professional can help you navigate emotionally driven financial decisions
Kevin says there are some situations in which helping kids with a home purchase is a good idea―but only if the parent has sufficient means. “If you have extra money, choosing to spend it on your kids might be great. But you have to make sure your own ducks are in a row before you start giving away your nest egg.”
Kevin recommends leaning toward a financially conservative approach, even more so if parents might be shortchanging themselves through their generosity. “There are some parents who are cheating themselves out of some significant lifestyle options by helping their kids move forward. Most of the time, your kids aren’t going to want you to do that.”
“While a financial planner would never stand between clients and their desire to help their children,” Kevin says, “I provide information about how this decision might affect other areas of their finances. Then they can consider the long-term ramifications of their financial choices and make an informed decision.”
Do your children actually want to own a home?
Kevin says home ownership isn’t necessarily the peak goal among today’s younger adults that it was for the boomer generation, and notes that people relocate for work now more than they did in past generations. “If they don’t consider a house to be their number-one financial goal, foisting one on them isn’t a good idea. Despite your intentions, make sure your gift is the most appropriate type of support that will work for your child.”
And while he also acknowledges that those living in Vancouver, Toronto and other cities may have seen rapid rises in home prices in recent years, “the house isn’t the automatic golden goose it once was in terms of consistent increase in value. Purchasing a home should be a lifestyle decision as much as a financial one.”
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For more on family finances, watch Loaning money to your children and read 5 tips for loaning money to family and 4 ways to get your adult children on the road to financial independence.