Pattie Lovett-Reid: Tips for parents before they help their child buy a home
Millennials have saved more of their income than older generations. Don’t believe it? Look at a recent survey by Merrill Edge, which found millennials save 36 per cent more than their general population counterparts report, as over a third stash away more than 20 per cent of their salary per year.
Here’s the deal: Millennials are saving just not for retirement. Millennials want financial freedom and are prepared to save for a desired lifestyle where boomers will save for retirement. Millennials would rather spend money on travel, dining and fitness rather than their financial future. They are also more focused on certain milestones like landing their first job or traveling the world, and are less worried about getting married and having kids.
Bottom line, millennials are saving, just for shorter-term goals compared to their parents.
I like the fact that they are saving; however, time and time again when boomers are asked: “do you have financial regrets” the response tends to always come back to: “I wish I had saved more for retirement.” But you can’t get someone excited about saving for something that doesn’t matter to them.
In the recent Home Ownership poll conducted by RBC, Canadian millennials and their parents still believe that buying a house is a good investment (79 per cent and 84 per cent respectively). However, more and more millennials are planning to delay the home purchase. More than other age groups, millennials were likely to cite the following reasons for delay:
- Carrying costs associated with home ownership (35% vs. 26% of ages 35 - 54 and 23% of 55+)
- Anxiety about unemployment (28% vs 26% of ages 35 - 54, 19% of 55+)
- Anxiety about home ownership (22% vs. 14% of ages 35 - 54, 11% of 55+)
While many parents want to help out their children with a home purchase, there are few considerations to take into account first. Here are RBC's tips for parents of millennials who may be thinking about helping out with a home purchase:
- Plan your retirement first. While helping your kids achieve their dreams feels great, it won’t feel great if you can’t support your own retirement.
- Be clear in your intentions. If you are in a position to help your kids financially, be clear on what that means - is the money for a down payment or to support the ongoing costs of home ownership? Is it a loan or gift? If a loan, is interest expected and what is the timeframe? Helping your kids does not mean you necessarily get a key to their house! Everyone should be on the same page.
- Think beyond financials. While giving money is certainly appreciated, there are other ways parents can lend support on the home buying journey: make a connection to a trusted advisor; co-sign a mortgage; pitch in on renovations; provide a sympathetic ear; offer a place to live while your kid is saving.