John MacDonald: Expecting too much from the Bank of Mum and Dad

When I was a first-home buyer, I can honestly say that I never expected any parental assistance with the finances.

Now, granted, my father was no longer alive and I probably thought it would be a stretch for my mum to help out. But I had no expectations.

And, as far as I can remember, I didn’t grow up with any expectation that the Bank of Mum and Dad would be there to get me onto the property ladder.

Fast-forward to today, though, and we find out that nearly 50 percent of young adults do expect financial help.
That’s according to the latest OneChoice Kiwi Housing Trends Report, which says 48 percent of 18-to-39 year olds say they need and expect help from their parents to get into their first home.

Which I think is very unfair on parents, to have that expectation.

I’m sure it’s probably very natural to want to help your adult kids buy their first homes. None of mine are at that stage yet.

But the bigger question is whether it’s fair to have these expectations placed on parents.
And I don’t think it is.

The most common way for parents to help out is to use the equity in their home to get a loan, which they then pass on to their kids.

Which is fine. But what if life throws those parents some sort of curveball and not having as much equity in their home as they used to works against them? If one of them needs to go into care, for example.

Which is pretty much what a financial adviser is getting at today. The way I’d describe what he’s saying is that it’s a bit like being on the plane and putting your own oxygen mask on before you help the kids put theirs on.

Tom Hartmann, who is a personal finance expert with Sorted, says he’s concerned about parents disadvantaging themselves by putting money into their kids’ homes.

He says you shouldn’t be dishing out money to the kids to buy houses if it means retirement becomes more of a struggle than it should or could be.

“Before someone is trying to help the next generation, they also need to take into account how they’re going to fill that gap.”

He also says parents helping out with money for a first home need to be clear from the outset whether it’s a loan or a gift.

And to formalise it.

So, if it’s a loan, then people should get legal advice and get a loan agreement drawn up so that everyone’s clear what’s going to happen.

As I say, my kids aren’t buying houses yet. And when it comes to helping them out, for me the bigger thing to consider is whether buying a house still makes sense.

Because I don’t see houses necessarily being the asset they used to be, partly because I don't see future generations enjoying the same level of capital gain that we did.

What’s more, owning a house might deliver you some financial gain down the track, but owning a home costs a lot of money day in, day out, doesn’t it?

So is it really worth it?

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Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Mornings podcast with John McDonald
from News Talk Z'B.

Speaker 2 (00:12):
You know, when I was a first home buyer, I
can honestly say, hand on heart, hand on heart, that
I never expected any parental assistance with the finances. Now, granted,
my father was no longer alive, so he was out
of the picture, and I reckon from memory, I just

(00:33):
thought it would be too much of a stretch for
my mum to help out. But I had no expectations
and as far as I can remember, I didn't grow
up with any expectation that the bank of Mum and
Dad would be there to get me onto the property
property ladder. Fast forward to today, though, and we find
out that nearly fifty percent of young adults do expect

(00:57):
financial help from the bank of Mum and Dad a's
according to the latest One Choice Kiwi Housing Trends report.
It says it says forty eight percent of eighteen to
thirteen nine year olds, so forty eight percent of eighteen
to thirty nine year olds say they need and expect
financial help from their parents to get into their first home,

(01:20):
which I think is very unfair on parents to have
that expectation. I've talking about a burden of expectation because
I'm sure it's probably very natural to want to help
you adult kids by their first home. So I mean,
none of mine are at that stage yet, they're in
the early twenties. But for me, the bigger question is

(01:41):
whether it's fair to have these expectations placed on parents,
and I don't think it is. I heard the guy
from oap's Partners you might have heard him as well,
talking to Mike this morning, and he was saying, the
most common way for parents to help out us to
use the equity in their home to get a loan,
which they then pass on to their kids, which is fine,

(02:03):
but what if life throws those parents some sort of
curve all and not having as much equity in their
home as they used to have works against them if
one of them has to go into care, for example.
It's all able to do these things when everything's fine
and dandy and the sunshining, but do people really think
about it long term? And this is pretty much what

(02:23):
a financial advisor is getting at today. The way I
would describe what this particular financial advisor is saying is
that it's a bit like being on the plane and
putting on your own oxygen mask before you help the kids,
put theirs on. Make sure you're all right, Jack, before
you start handing out the cash. And Tom Hartman is
his name, and he's a personal finance expert was sorted

(02:47):
and he says he's concerned about parents disadvantaging themselves by
putting money into their kids' homes. Of course, he says,
you shouldn't be dishing up money to the kids to
buy houses if it means retirement becomes more of a
struggle than it should be or could be for you. Quote.
Before someone's trying to help the next generation, they also

(03:08):
need to take into account how they're going to fill
that gap, and as he points out, pension won't go
very far on that front. He also says parents helping
out with money for a first home for their kids,
they need to be clear from the upset whether it's
a loan or a gift. And this is where it
gets really blurred air, and he says they need to
formalize itsel If it's a loan, then people should get

(03:30):
legal advice and get a loan agreement drawn up so
that everyone is clear what's going to happen. And I've
heard cases where that hasn't happened, and it's been pretty messy. Now.
As I say, my kids aren't buying houses yet, and
when it comes to helping them out for me, For me,
the bigger thing to consider is where the buying a

(03:51):
house still makes sense. And I'm in two minds about
that because I don't see houses being the asset they
used to be, partly because I don't see future generations
enjoying the same level of capital game that we did.
I mean, if you're around my general and you've bought
and sold houses, picking your dittle right out of it.

(04:12):
And what's more, owning a house might might might might
deliver you some financial game down the track. It's a
big mic these days. But also, owning a home costs
a lot of money day in, day out, doesn't it?
So is it really worth it? Well, if someone decides
it is, then they should I mean, should they expect

(04:35):
their parents to help out or should they do it
all under their own steam? What do you reckon? Is
it too much to expect parents to help their adult
kids by their first time?

Speaker 1 (04:46):
For more from Canterbory Mornings with John McDonald, listen live
to News talks It'd be Christ Church from nine am weekdays,
or follow the podcast on iHeartRadio