By Veronica Morgan
I’m in two minds about whether parents should help grown up kids buy a property. I think parents first need to teach kids about budgeting and help them get a good education so they have a good start in life. I’d like to be able to say to my daughter, “I can help you buy your first home firstly by instilling good values, teaching you good financial practices, setting a good example and then, maybe, by helping you out financially.”
We can throw kids some money (either as a gift or a loan), go guarantor, let them live at home rent-free, maybe even buy them a property while they are still a child, but is this really doing them any favours?
A survey of 1,006 people nationwide, by mortgage lender State Custodians Home Loans, found one third (29 percent) of Gen Y-ers aged 18-to-34 say they’re relying on their parents to either gift or lend them money towards the deposit, whilst 26 percent are waiting for some kind of parental inheritance to help them out.
Sometimes I think we Gen X parents have done our kids a disservice. I don’t think we are very good at demonstrating the value of delayed gratification. Yet it’s essential that our kids understand that they need to make sacrifices if they want to buy their first home.
Instilling the value of self control early on is a great help
In order to get onto the property ladder, kids need to develop a mindset that encompasses future goals and self-regulation. Money smarts start in childhood – we all need to understand that money is a limited resource. The proliferation of credit cards, and now, with “tap and go”, it’s natural for kids to think their parents have access to endless money reserves. Often they don’t even associate money with the plastic card.
Ideally, we help our children learn the fundamentals of money management while they are still kids. This can be done by talking to them about their choices with pocket money, explaining that credit cards actually need to be paid for and specifically teaching them financial literacy.
But if the kids haven’t learnt these principles in childhood and adolescence, they will have to learn as an adult, otherwise they’ll always be a financial burden to their parents. I don’t think that situation is good for anyone! Not the parents, not society and certainly not for adult kids!
If we have done our job as parents, our kids will understand the value of money, how to prioritise for the future and exercise discipline with their spending and saving habits. Beyond these foundations, we can offer suggestions borne out of our own experiences (start small, for instance) and financial assistance (a gift, loan, or going guarantor, to name a few).
What to bear if mind if you do want to help your kids buy a home
So if you do want to take the plunge and enter into a financial arrangement with your kids, here’s a couple words of warning. Firstly, get some legal advice and set up agreements before you commit. Secondly, beware the perils of the “bank of mum and dad”.
In my experience, I see all too often that parents overpay at auction when helping out their adult kids. I know that they want the best for them, and they hate to see them miss out, but helping them overpay is not the best way to set them up financially.
Don’t forget about yourself. As a fall-back plan, one of the best ways to help your kids in the future is to set yourself up well now. If you have been sensible and paid a heap off your home mortgage, get some advice and see whether buying an investment property is a good idea. If it is, get specific advice on what, when and where to buy. If you have invested wisely, and seen good capital growth, then you will have options available to you when the time comes to help your kids get onto the property ladder. As long as they’ve learnt their lessons of course!
–Veronica Morgan is the principal of Good Deeds Property Buyers, co-host of Location, Location, Location Australia on Foxtel and co-host of The Elephant in the Room property podcast.