Dec 3, 2020
Pattie Lovett-Reid: Bank of Mom and Dad still open despite pandemic
Parents are still willing to help their kids buy a first home amid pandemic: Survey
Chief Financial Commentator, CTV
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The Bank of Mom and Dad is still open for business.
The dream of homeownership has not taken a backseat to the pandemic. According to a new poll released Thursday, despite financial challenges brought on by COVID-19, parents are willing to help their adult children or relatives fulfill their housing dreams.
Twenty-five per cent of respondents in the RBC Home Buying Sentiment Poll stated they had to provide financial support to their children as a result of the pandemic. The amount isn't insignificant – an average of $60,513 to support their child’s home purchase, with only 49 per cent expecting to be paid back.
Throughout the pandemic as people got a better idea of what work from home and new demands on their living space would look like, prices and sales soared outside of core areas like Toronto and Vancouver as buyers looked for bigger spaces. The majority of respondents (58 per cent) stated it was almost impossible to buy a home on their own or even afford rent. The poll found that 60 per cent of Canadians view housing prices in their region as unaffordable.
The pandemic has highlighted the importance of working and spending more time at home. However, maybe more importantly, the pandemic has also brought families closer together financially.
Those who have the financial resources are willing to help, according to the poll’s other findings:
- 31 per cent said that if asked, they would help a family member pay for a new home
- 46 per cent said they would help a family member pay rent
- 81 per cent said they believe homeownership is a good investment
The issue of affordability is top of mind: 66 per cent said they worry about the next generation and their children being able to afford a home. Given this scenario, as the rich have become richer, the idea of sharing wealth with your family to help them buy homes, reduce debt and even have a little financial flexibility makes all kinds of sense.
As a parent, if you are in a strong financial position and have planned well for your own retirement, sharing your wealth with your family through a "living inheritance" can benefit both parties. You get to see your children enjoy homeownership, while also enjoying the gift of giving while you are still here to experience it.
While taxes shouldn't drive your decision to help out a family member, there is a bonus feature associated with gifting cash to your children. There are no taxes paid on cash gifts. In other words, you don't have to report the gift and your children don't have to declare it as income.
As Baby Boomers age, home prices continue to climb. And coupled with a desire to help out your family members financially, this strategy of supporting your children’s home purchase has all the makings of a win-win scenario.