More and more folks are feeling forced to help their kids get into property, but is there another way?
Parenthood is a journey of sacrifice, no doubt about that.
But we seem to have set up a system where parents just have to keep on giving until they drop.
More and more young home buyers are turning to Bank of Mum and Dad for help getting into the property market.
And this isn’t just about convenience. In some of our capital cities, home ownership just isn’t an option without a solid bit of help from your parents.
So parents face a tough choice. Either help out the kids by tapping a large part of your retirement plan. Or stick to your financial plan and leave your kids stuck in a rental trap forever.
And this is not just a poor person’s bind. Retiring Reserve Bank Governor, Glenn Stevens also admits he’s on the hook for his kids’ houses.
From The Age:
“The 58-year old said a lot of parents of his generation would end up financially assisting their children into the property market.
“I think that a lot of people of my generation are actually going to find themselves, if they haven’t already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market,” he said.
Mr Stevens said this would lead to parents having to reassess their level of wealth.
“That, of course, means that for people of my age, that the wealth we think we have in our house, actually, we don’t have quite as much as we thought because we’re going to have to give some of it to the next generation.”
He said this would also lead to disadvantage being perpetuated for families who only rent but added that he did not have all the answers to the complex problem.
When even the Governor of the RBA has to heft his kids into a house, you know you’ve got a big story going on.
And this is a problem. Most people I know don’t have a heap of wiggle room built into their retirement plans. Not everyone can say, “No European cruise this year darling, we’re buying the kids a house.”
For a lot of retirees it’s going to mean real sacrifice.
We’re also talking about entrenching existing wealth divides. If you can’t buy a house no matter how hard you work simply because your parents weren’t rich enough to help, then that’s a slap in the face to our fair-go society. It’s a real shame if its come to that.
So what do we do about? How do we secure our retirement and help our kids?
Well, ideally we’d get to the root cause of the problem. We saw a surge in house prices when a wave of demand led by falling interest rates, high population growth and a mining boom slammed into a unresponsive housing market. Demand totally swamped supply.
So there’s no easy fix for that one. (Though more houses would be a big step in the right direction.)
But I’m not here to fix the world. I’m just here to help people with their own financial journeys.
So what would I recommend?
Well, maybe there’s another option that doesn’t involve disowning the kids or raiding your super.
Because when we break it down, the main reason we want to help the kids get a house is often because home ownership is the foundation of wealth and financial freedom. Sure, there’s the security and the enjoyment of owning your own place, but we feel that if the kids are forever renting then they’re going to get nowhere.
So maybe the real issue is helping the kids with their financial future. Framing it that way helps us see a few more options.
So what if, for example, rather than just giving the kids a deposit, you stumped up the equity for their own development deal? Effectively you become the money partner. They get their foot on the property ladder, and you keep the retirement you’ve spent a lifetime building.
There’s lots of options like this. Teach a man to fish, and all that.
Of course, you need to know what you’re doing. That’s why education is important. And we do have a lot of people coming as families to our seminars and workshops. When the parents bring equity and wisdom, and the kids bring passion and energy, it’s a potent combo.
So that’s my advice to Glenn Stevens. Don’t just give your kids a hand-out. Help them take their financial future into their own hands.
It’s the gift that keeps on giving.
What’s the best way you can see to help the kids out?