Many Boomers have, well, boomed in real estate over the past several decades. Now, a good number of Boomer parents desire to help their adult children get their first home, which is pretty much unaffordable.
So, the question becomes, should you help your kids with housing? And can you?
Jason Heath, fee-only, Certified Financial Planner with Objective Financial Partners says, “Homeownership may be a good idea for younger folks. Part of the benefit of homeownership is not just financial – it’s peace of mind.”
But whether parents should assist their kids is not something Heath feels parents ought to pressure themselves about.
“No parent should ever feel obligated to help their children financially, especially if it’s to their own detriment. That’s the biggest concern I have – parents stretching and compromising their own retirement, simply to help their children buy a home.”
If you are going to help, now what?
Heath advises: “Making a gift to a child is certainly one option. If you do this, it’s important to consider some ‘what if’ scenarios. What happens if your child divorces? Oftentimes, 50 per cent of that gift ends up going to a divorcing son- or daughter-in-law. What happens if you die and you have other children to consider?”
Documentation is key
“If nothing is documented,” Heath warns, “one child may benefit at the expense of another. A loan is always an option. Some parents will loan money at a commercial interest rate, so the child is paying a fair rate and they are earning a fair return on their money. This may work in a case when a child can’t borrow enough money from the bank, but then again, if they can’t borrow enough, that tells you something.”
What if you can’t afford to help
You hear it every time you get on a plane. In the event of an emergency, you need to put your mask on first before helping others. But when it comes to your kids, that’s easier said than done. “If a parent can’t afford to help, or even if they’re not sure if they can afford to help,” says Heath,“financial assistance for a child may not be possible. I think a parent needs to put themselves first. Compromising retirement to help a child can be a big financial risk. You may or may not be able to count on your kids if you run out of money and need help from them!”