With sky-high property prices in capital cities across the country, the pressure on parents to shell out for their kids to buy a house is also on the rise.
Now, we understand the appeal of giving your kids a financial leg up onto the property ladder, but we don’t always recommend it.
When it comes to buying a house, our belief is our adult kids are big enough and ugly enough to look after themselves.
We don’t think it’s selfish to prioritise your retirement over boosting your kids onto the property ladder… after a lifetime of hard work you’ve certainly earned it.
If you do go down this road, here are five ways that you can help your kids get what they want without sacrificing your own retirement goals.
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1. Educate them
Teaching your kids about money should be a priority, particularly when they’re young.
Instilling good saving habits early on is the best financial gift you can give them, and they’ll thank you when the time comes to start saving for a deposit.
Pocket money is a great way to teach your kids valuable lessons about saving and the value of money. Give them incentive by matching their savings dollar-for-dollar when getting them started and encourage them to set financial goals.
2. Put up a family guarantee
This tactic means you’ll be putting the equity in your house up as security for theirs, so it might not be a comfortable solution for many.
Financial planner and director of Financial Spectrum, Brenton Tong, says that solid rules must be put in place to reduce the risk if you choose adopt this approach.
“E.g. As soon as their debt has been reduced and their property has gained sufficient value, they have to refinance you out. If they fall behind in repayments, they have to sell rather than tapping you for more money,” he says.
3. Buy with them
This option can either make or break your relationship with your child, so tread carefully when considering it.
Brenton says if you’re going to do it, it mustn’t be because they want a pricier property, “they need to learn to compromise and live within their means”.
Ideally, you should help them with the deposit only, that way you won’t get stuck with mortgage repayments if things go pear-shaped, your child will be on the property ladder and over time, you’ll both walk away with equity when the property value increases.
4. Lend them money through a third party
Unless you’re willing to part with the money for good, it’s best not to lend them money privately. To avoid putting a strain on your relationship, have a third party administer the loan on your behalf.
This puts clear rules in place for repayments and takes the pressure off you both. As Brenton says, “safer for you, safer for your relationship.”
5. Tell them to toughen up
A controversial alternative for some, but one we stand by – tell your kids that they have to suck it up and go it on their own.
It’s never been easier to borrow money in today’s economy and interest rates are at record lows. As parents, we paid 17 percent interest, went without the flashy cars or gadgets and put overseas travel to the side until we built a stable financial foundation for ourselves.
And there are plenty of millennials doing it the same way… it can be done.
“Sometimes, making sure your kids know there isn’t any help coming can be the greatest help,” says Brenton.
We believe a good financial education can be just as effective as shelling out cash when it comes to giving your children what they want. It’s also much less risky.