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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROMA: Home prices have skyrocketed since the start of the pandemic, threatening to price a generation of young buyers out of the market. It’s so bad that some parents are flat out giving their adult kids the money they need for a down payment. But can they afford it?

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ROB: Today, we hear from parents of Gen Z and millennials about helping their kids buy homes - and what that means for their own finances.

ROMA: Welcome to Stress Test, a podcast about personal finance for Gen Z and millennials. I’m Roma Luciw, personal finance editor at The Globe.

ROB: And I’m Rob Carrick, personal finance columnist at The Globe and Mail.

ROMA: Parents who are able to do so, who can afford it, have been helping their kids get into the housing market for years now. The Bank of Mom and Dad is not a new phenomenon. What is new and noteworthy is the scale of that help - the amount of money that is changing hands specifically in order to buy homes. That was outlined in a CIBC report released last fall. Rob, tell us about that report.

ROB: Well, the report was super interesting to me because I’ve been waiting for years to find out just how much parental involvement there was in the housing market, and the answer was a lot. The report says that parents gave their kids more than $10 billion in down payments over the previous year. It was about 10 per cent of total down payments over that period, and about 30 per cent of homebuyers got the help and it averaged $82,000. It was more in some of the bigger cities than that, so we’re talking about a high number of people getting help, and that help is considerable. What’s your take on those numbers?

ROMA:I mean, I think what the report clearly showed is how large the down payments are getting and that getting this amount of money from parents is absolutely a game changer. These are huge amounts of money that are widening the wealth gap between young adults who get this kind of money and the ones who don’t. And that translates down into the parents who are able to provide that help and those that are not. In some cases, that’s the difference between who can and cannot get into the housing market.

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The latest report showed us the numbers, but we wanted to hear from parents who were in this situation. So we asked Globe readers to write in and share their stories. We wanted to know how they felt about extending this financial help. Were their kids asking for the money? Did they offer it? Did they feel pressured? Were embarrassed? Were they worried about how it would impact their own finances, their retirement? And how common was this among their friend group?

ROB: Stress Test is a podcast for millennial and Gen Z’s. But in this case, we wanted to hand the mic to your parents. To hear from them how this newfound pressure to hand over large down payments is impacting them. We wanted to share some of the responses. So we got two friends of the show, Linda and Michael, to read them out. Here’s what our readers told us:

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LINDA: We’re in this position right now. We have talked about it a lot and decided to not give the money. We feel like crappy parents for not helping out, but it’s just too risky for us.

MICHAEL: My stepdaughter in Toronto and partner have made it clear that they believe parents with resources have a moral obligation to assist their children with home purchases.

I have access to resources that could help them, though, for several reasons, I am not yet ready to do that. Two of the main reasons are that they are not married yet, even though my daughter would want to be.

And at 68-years-old, I am close to retirement but do not yet have a confident understanding of how I will feel about my financial situation a few years from now when I am no longer earning any income.

LINDA: So far, my experience has not yet been to support my kids with housing. The kids are age 20, 25 and 27. Instead, we support them with a full ticket to funding their education and/or living with us rent and utility free.

I’ve witnessed, more recently in my circle, a tendency for my 25- and 27-year old’s cohort of friends to be supported financially by parents in purchasing condos and houses in what I know to be an overpriced, crazy-headed housing market.

This money has been gifted, often with no strings attached. No one owes you a living; you need to create it yourself. The happiest people I know did it themselves and are proud of it.

But it’s frustrating to watch this happening, and I do find myself getting caught up in it as my daughter, in particular, has become so down about her cohort’s windfall.

MICHAEL: I have recently helped both of my kids buy a home. My son bought a modest two-bedroom condo in Vancouver. My daughter, her partner and now infant son were able to buy a home in Victoria. Neither of my kids asked for my help. They both asked me why I would do this when I could have spent the money on something else. I told them I quite honestly could not think of anything that money would buy that would give me any greater happiness than helping them into their first homes.

I live well, but not extravagantly, and the money I gave them should not materially impact my lifestyle.

The only downside is my kids, and I feel we are in a position of privilege, and we have exercised that privilege.

It seems wrong and unfair to me that getting a home is no longer possible if you work hard and save - you need to have won the life lottery and have boomer parents with disposable income.

[MUSIC TRANSITION FADE IN]

ROB: While some parents are giving their adult kids down payment money as a loan, other parents are giving them cash as a full on gift. The no strings attached kind. I spoke with a woman in Saskatoon who decided to do just that for her 32-year-old daughter. Here’s our conversation.

ROB: let’s start with you having us...you tell us just a bit about yourself?

MARIE: I’m in my late 50s. I’m a government employee. I have a defined benefit pension plan. I live very frugally, so I don’t feel concerned about money whatsoever. I don’t feel that I need a lot to live.

ROB: Tell me about the talk you and your daughter had where you raised the idea of helping her buy the house?

MARIE: It wasn’t much of a talk. Actually, just before Christmas, I went for a walk with her and her husband, and I told them that I do want to help them buy a house. And they said that would be wonderful. They were expecting maybe $20,00...$30,000. But when I gave them the cheque for $150,000 they were blown away. They didn’t want to take away from my, for my future security, and I told them that this was extra money that they would get anyhow. So why not give it to them now?

ROB: Have you provided any conditions on this cash gift you provided?

MARIE: There were no conditions. I thought of putting conditions on it. A friend of mine told me I should give the money to them as a loan so that if my daughter’s husband ever does leave her, half the money doesn’t end up going to him. But I thought that if I did that, then they would be hesitant to take the money. I also thought as a condition that her father, from whom I have been divorced for 20 years and his parents could give some money too, especially since they are actually in a better financial condition than I am. So I thought I could say I’ll give you $50,000 as long as your other parents give you $50,000 as well. I thought that would be fair, but I realised that wasn’t going to be possible. Not all parents have the same philosophy of giving their children money. And I actually talked with them about this and they told me that their other parents would not give them any money, but they are very handy. So they’ll give them assistance in-kind instead.

ROB: You mentioned that the gift was your idea. Did you feel any pressure to help your daughter?

MARIE: I didn’t feel any pressure, but I was noticing in articles in the Globe and Mail and so on that a lot of children use the Bank of Mom and Dad to buy a house. And I was seeing that, especially with my niece’s experience, that it becomes almost unaffordable for young people, for millennials to buy a house these days without any kind of assistance. So I felt, why not help? Because I can help.

ROB: What’s been the reaction from your family and your friends to this gift you provided your daughter?

MARIE: The only other person who’s aware of that is my father, and he thought it was extremely generous. My father...I come from a working class background. We were very, very poor and so we never had that kind of support ourselves because it wasn’t possible. And so that amount of money is significant to my father. But to me, it was...It’s extra money. So he was just amazed that I would do this. But I haven’t told anyone else because I almost felt like it would be bragging. And if I told my nieces and nephews who have bought houses mainly with their own money, they would wonder why their parents, who are richer than I wouldn’t have supported them in the same way. So I just...we’re just keeping it quiet. And my daughter and her husband haven’t told me if they have told their parents or their friends, either. So I think it’s just between us, for the most part.

ROB:Have you talked to your daughter and her husband about how much it costs to own a house and run it and keep it in good working order and how well-prepared they are about that side of ownership?

MARIE: No, that’s a good conversation to have. I think they have an understanding of that because they do have some friends who own houses. But also right now they’re renting a house and they’re paying for everything except for the mortgage and the home insurance. But I do think they’re both very level headed. So I think they’ll understand that, but I haven’t talked to them about that. I was going to tell them about home insurance, how it costs more and other things they need to take care of. In fact, I’m assembling a document about how to buy a house that’s not a pig with lipstick as Mike Holmes would call it. Because they’ve been looking at houses and they’re so excited about a house that has a finished bathroom and a finished kitchen. But I want to tell them to look at the furnace, the electrical, the plumbing, the roof and all those things, so I’m just in the process of assembling a document that will help them do that.

ROB: Let’s finish off by having you tell us how it makes you feel to have given your daughter this help.

MARIE: How it makes me feel? I feel really happy and really blessed to have had this extra money to gift to them and to be able to give them a lift and a head start. My daughter and her husband are in their 30s and they haven’t been able to buy a house, and I was able to buy a house in my 20s because they were very, very cheap back then. And so it just makes me feel comforted in a sense to know that they’ll be able to buy a house in a reasonable neighbourhood. And I’m giving them a good head start.

[MUSIC TRANSITION FADE IN]

ROMA: After the break, I’ll speak with a couple in Alberta who helped their middle son with a down payment - and other living expenses.

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ROMA: Retiring means living on a set income. So supporting their 20 or 30-something-year-old kids with housing and other expenses, can drastically change a retiree’s financial picture. I spoke with a semi-retired alberta couple about helping their 28-year-old son with a house downpayment and other bills. Here’s part of our conversation.

TRACEY: My name is Tracy and I’m 62 years old. I recently retired at 60. I have been a registered nurse since I was early 20s.

BOB: My name is Bob. I’m 66 years old. I am a retired research scientist. I retired in 2019.

BOB: I would say we are middle class. We have a fairly stable financial situation in retirement because I have a defined benefit pension plan. So that’s a really big factor. We have a decent amount of investments. I don’t know that you need the dollar figures are not, but we have most of that in tax free savings accounts. Some RRSPs and more recently a non-registered account when we sold our - was formerly our primary residence. So we have some money in that.

ROMA: Ok so good financial situation. Tracy, how many kids do you have?

TRACEY: Three sons and they’re all born here in Canada. They’re all Canadians. One is 25. The next one is 28 and the oldest is 30. They’re all employed except for one. One is unemployed. Looking for a job.

ROMA: OK, So you recently put $62,000 of your own money towards the purchase of your second son’s home. Is that correct?

TRACEY: That’s correct, yes. OK, I thought it was 50,000, but 62 now?

BOB: It’s gone up to 62 now.

ROMA: Bob and Tracey wanted their second son, who has a disability that limits the kind of work he can do, to have a place of his own. At first, they thought they would be able to use the money in his RDSP - his registered disability savings plan.

BOB: So we approached the bank, we’d be looking around and they approved a mortgage for him and with the limit and some of that money was going to come from his RDSP. However, after we put down a down payment on the house, we found out that that’s not like an RRSP. You can’t use that money. So that’s why we ended up putting the full down payment amount. And we got it thinking he would be more independent...help him out. You didn’t have the ability to raise funds for a down payment. So we were fine with that at that point.

ROMA: The costs of your son’s mortgage payments, some of the financial help you’ve given him, how is that impacting your retirement or your own financial situation?

BOB: Before we sold our primary residence, cash flow is a real problem. So we ended up selling that August last year and we moved into our rental place. So it’s a smaller house that needs renovations as well.

TRACEY: Lower taxes...

BOB: Yeah, lower taxes, so are for a few months. We have a fairly steady income with my pension and that not too many outlays...and our financial situation look pretty good. But with other costs coming on now - before our son lost his job and before this Omicron hit, we have a property overseas, which we hope to retire to. We want to do some major renovations and put an extra bedroom and a bathroom. It’s a very small three bedroom, one bathroom bungalow. So it impacts our future planning and what we can do.

ROMA: What would your ideal retirement look like?

BOB: I’d be on a sailboat sailing around Brisbane. On my motorbike, going through the country roads and camping and travelling.

TRACEY: We’ve been very fortunate. So we did go back to Australia and we did a lot of fun things and we had a great time. And I do worry about leaving our son here because my oldest son, who’s just around the corner from him, is working full time and very busy as well. And so I don’t feel like lumping that responsibility on the other two boys, although they’re there to help if they needed it. I mean, we could do six months there, six months. Here is a whole bunch of options.

ROMA: So what’s the concern then about leaving your sons if they’re not all financially stable and set up here?

BOB: Well, I think the two of them are fine. The one is we just have to we just have worries about. So that’s the main thing that worries my middle son and my father. I don’t know if that’s different from other parents. You know, we feel we have to look after our kids.

TRACEY: I think that’s a responsibility that most parents have to a point. And we’re there for them. I’m torn between two worlds to tell you the truth because I’ve always dreamt of returning to Australia and 20 or 31 years later, I’m here, but I love Canada, too. Don’t get me wrong, I’ve done everything here. I’ve had my children here, got married here, everything, so I don’t have a large family there. My family is closer here in Canada than in Australia.

ROMA: Do you feel as parents in today’s housing market, in today’s economy, with all the additional pressures that COVID has brought? Do you feel pressure or do you feel that part of that parental responsibility includes providing a place that your child can live?

BOB: Yeah, I think it does. I think we made the decision pre-COVID, and I did sit by the two sons down and tell them what we were doing and also said that it will even out in the end.

ROMA:And certainly it sounds like both of you feel that the necessity for that financial help is greater now.

BOB: Oh, I think so, yeah, definitely. Especially with the housing costs. Our youngest son in Vancouver would never be able to, no matter how hard they work and working over time, get a down payment for a property there. It would be a real stretch. So, you know, if we can help, we certainly will.

ROMA: How does helping your sons financially make you feel?

BOB: I’m happy to help them. I can’t see not doing that. And we do it to the best of our ability. We still have to look out and decide, you know, how much we’re going to do that. And right now, it’s more trying to get a change in one of our son’s lifestyle so that it’s more financial...He’ll be more financially stable going forward and helping out the other two as we can. And when their priorities come up. Yeah, we’re in a good position that we can do this. If all three of them lived in Vancouver, Toronto and were looking for down payments, I don’t think...that would be next to impossible. So I don’t know how people do that there without re-mortgaging their own house. So, you know, we’re lucky in Alberta here the cost of housing is quite low.

ROMA: Do you think it’s a parent’s obligation to provide this kind of financial help for their adult kids?

Tracey: It shouldn’t be.

BOB: I think it’s more a personal choice. I don’t think it’s an obligation. And of course, everyone’s situation is going to be different. We don’t certainly feel obliged that we have to do this. It’s something we can do. So we happily do it. I mean, with my father he was a chartered...he’s an accountant and he was very strict with money, as was his father. They were both accountants. When we were struggling, when we first came back to Canada. And Tracey was getting a job. We needed a second car. We went to get a personal loan from the bank. And I think that that was back in the early 90s and interest rates like 17 or 18 per cent. So my father decided he would help us out by giving us a loan of 12 per cent. So we paid it off with post-dated checks. And, you know, he made sure every penny was paid back. And he has told me on a number of occasions that you shouldn’t just give your kids money. That doesn’t help them financially in the long run.

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ROB: One thing that occurs to me in listening to parents talk about helping their kids is that Gen Z and millennials might be the first generation of young parents who go into the stage of life where they start a family knowing they’re going to have to help their kids buy a house when they get older. You know, I know they’re going to be thinking about day-care and about activities and then about university, but I think it’s going to be on their radar right from the get go. Can we put some money away for our kids to buy a house? Even if it’s just a small amount alongside the RESP, the registered education savings plan, I think more families are going to be thinking about that house fund.

ROMA: I mean, hopefully one other thing that comes out of discussions like these is the understanding that down payments like this are happening. And having reports that put numbers on this and seeing this kind of information will help people realise that the reason that people are getting into the housing market is because some of them are getting this kind of help. And that is, as you’ve described it, the secret sauce. And as I’ve said, a game changer for homeownership.

ROB: We have three takeaways for you from today’s episode.

  • Parents, don’t put yourself in a financially precarious position to help your kids buy a house
  • For millennials and Gen Z, be mindful that your parents may need all their savings to remain financially independent in retirement
  • Be mindful of what happens to down payment gifts and loans if a young couple separates or divorces: consulting a lawyer in advance makes sense.

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Thanks for listening to Stress Test. This show was produced by Amy Chan and Zahra Khozema. Audio engineering and editing by Kyle Fulton. Our executive producer is Kiran Rana.

ROB: Thank you to our guests who shared their stories. If you like what you heard, give us a five star rating and review on Apple Podcasts.

You can find Stress Test at Apple Podcasts, Google Play, Spotify or your favourite podcast app.

And find us at the Globe and Mail.com, where we cover all things financial. In our next episode, we’ll talk with some GenZ and Millennials who are investing in Crypto - and hear about their gains and losses. Thanks for listening!