A father of children aged 5 and 7 got in touch recently with a concern that worries me on a couple of levels.
This dad sees house prices soaring and wonders if he and his wife should be proactive about helping their kids. “We’re diligently saving in their registered education savings plan, but with the rising costs of home ownership, should we be allocating funds for our kids’ future homes? We have significant equity built up in our current home. Are we missing out by not accessing it and reinvesting?”
Our sons are 24 and 27, but I still recall the continuum of parental spending. It starts for many parents with daycare and then shifts into activities, summer camp, cellphones, car insurance and saving for college or university. I worry about layering a new financial responsibility on parents – building a house fund for their kids.
I also worry about how financial help from well-off – and well-meaning – parents is widening the affordability gap between families with wealth and everyone else. If you don’t come from a financially solid family, your chances of home ownership are declining rapidly.
It’s natural for parents to want their kids to share in the wealth-building experience that home ownership has been for boomers. I leave it to families to choose the right course, with a couple of thoughts to add. One, borrowing via a home equity line of credit to invest is risky. Please don’t assume the amazing stock market gains of the past 18 months will last indefinitely.
Two, there are a bunch of family financial goals that come ahead of a house down payment fund – reduction of high-rate debt, retirement saving and building up RESPs. Helping your children graduate from university or college with little or no debt is a way of enabling them to start saving sooner for a home.
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Rob’s personal finance reading list
What might trigger a Toronto real estate decline?
With an average home price just above $1-million, Toronto has become unaffordable for some buyers. What might cause prices to fall in the city? Some thoughts here from John Pasalis, a realtor and data analyst. An analytics website called The Habistat has a proposal for reining in house price increases – lower the standard mortgage amortization period to 20 years from the current 25. Some advocates for housing affordability suggest giving people 30 years to pay off their mortgage. The Habistat argues that this would drive prices higher.
The financial industry and racial justice
An accounting of how much progress banks and investment firms have made in making their work forces more diverse.
Best U.S.-dollar savings accounts
A survey of rates and features on U.S.-dollar savings accounts for Canadians. EQ Bank’s recent foray into this product has shaken things up.
The billionaire’s tax-avoidance playbook
Abigail Disney – yes, of those Disneys – on how billionaire families work things so they pay little or no income tax.
Ask Rob
Q: I am planning to buy a car. How do I decide on my car budget? My household income is $100,000.
A: Here’s an article with some sensible guidelines. My own rule is to finance over no more than five years, and cap monthly payments at $400.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Watch this
A TikTok video about the cost of enjoying drinks and food on a patio as the pandemic opens. This is the kind of thing I was thinking about when I wrote a column recently on the financial shock ahead for people who bought houses in the pandemic.
The money-free zone
An appreciation of a great used record store in Montreal called Cheap Thrills. I’ve been a customer for decades.
ICYMI
- Not all wealth taxes are created equal
- Getting divorced in retirement? Here’s how to protect your assets
- Wealthsimple Trade becomes first broker to offer fractional share purchases in both Canadian and U.S. companies
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • How to crisis-proof your finances • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick