I’ve been thinking. How are our kids ever going to be able to afford a house? As parents we not only need to teach them about budgeting, help them get a good education and a start in life, but we need to invest wisely so we can help them financially when the time comes. 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 practises, setting a good example and then, maybe, by helping you out financially.”
We can throw them some money (either 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… However, you need more than flush parents in order to buy your first home. Even if you can afford to give your children money, in order to get a loan from the bank, they will still need to show they can meet the repayments.
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 you understand that you need to make sacrifices if you want to buy your first home.
When you grow up with privilege (and I am really suggesting here that “living comfortably” is privilege) then it’s easy to develop a sense of entitlement. Yet simply believing that it’s your birthright won’t help you buy your first home.How to help your kids buy their first home: teach them delayed gratification when they are little. Boring but it works. Click To Tweet
In order to buy your first home, you will need to develop a mindset that encompasses future orientation 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, “tap and go”, can lead 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. There is even a concept called “kidulting”, where teenagers are given a lot more responsibility and control over their own spending. And then some kids learn the hard way – observing and experiencing financial hardship as a child can lead to people being careful with money.
So, 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 (gift, loan, guarantor, to name a few).
A couple of words or warning. Firstly, if you are to enter into a financial arrangement with your kids, get some legal advice and set up agreements before you commit. Secondly, beware the perils of the “bank of mum & dad”. In my experience, I see all too often that parents overpay at auction when helping out their adult kids. In fact, they are one of the 5 bidders to watch out for at auction. Parents want the best for their kids and they hate to see them miss out but helping them overpay is not the best way to set them up financially.
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 of your home mortgage, get some advice and see whether buying an investment property is a good idea. And, 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.
Click here if you’d like one-on-one advice from Veronica about investing in property.
Published 29 November, 2017
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.