It's Your Money  

Is that really a good idea?

Are you considering helping your child buy their first home? If so, you’re certainly not alone.

A recent survey commissioned by the Financial Planning Standards Council found that 38 per cent of Canadians plan to hep their child purchase their first home.

A significant portion of those surveyed also admitted that the money they will use to help their child’s home purchase are funds that would otherwise have gone to fund their own retirement or reduce debt.

On the surface, this appears to be an admirable gesture and many feel that it is the only way their kids will get financially established themselves with the current sky-high real estate prices. But this generous act may have some dire financial consequences and should not be undertaken without careful consideration.

Any parent considering helping their adult child out with their first home purchase should review (or create) their comprehensive financial and retirement plans first.

If you can’t clearly and confidently answer the questions of when you’ll retire, how much you will have saved at that time and what safeguards you have in place to deal with future unexpected financial surprises you are in no position to make this kind of a decision.

There is no doubt some parents have sufficient financial assets to help their kids and this may be a good idea if you’ll end up leaving them a considerable inheritance when you pass away.

But many other parents will be cheating themselves out of a comfortable retirement by passing on funds when they can’t afford to, and many won’t realize this until it’s too late.

A certified financial planner (CFP) would not stand in the way of a parent’s desire to help their children out, but they will arm the parent with enough information to help them make an informed decision. Take the time to plan appropriately and don’t rush to make a rash decision.

Helping your child financially is usually fuelled by emotions and we all know by now that emotions can lead to poor financial decisions. Owning a home isn’t necessarily the peak of reaching adulthood and financial stability like it used to be and it may not be the best choice even if you can afford to do so.

The child’s own financial situation should be analyzed as well to see if they’re in the right position to take on home ownership.

You should also consider what happens if the real estate market drops in value or if your child decides to pick up and move to a new city for their dream job. The child that you’re considering helping should have their own financial plan drafted up to see how it would all work and if their income and other debt loads will work.   

A proper financial plan is a vital tool that needs to be in place before you take this big step. Once you see what kind of impact this financial gift will have on your own retirement plans, you can make your decision properly.   

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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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