This kids will be all right — even if you don’t help them buy a home.
One in five U.S. homeowners received a gift or a loan from a friend or family member to buy their home, according to data released Wednesday from Legal & General, a multinational financial services company. And more than half (51%) of prospective homeowners under 35 now say they expect to have help to buy from family or friends.
Most often it’s mom and/or dad opening up their wallet, with parents accounting for 72% of the lending. The sums getting dished out are high — an average of $39,000 apiece — and most often these are given as either a gift or an interest-free loan.
And with their kids facing high housing prices and big student loan debts, “they feel they sort of have to do it — it’s a necessary evil,” says Nigel Wilson, the chief executive of Legal & General, which is based in London. Plus, “the major mistake that parents make is they are too emotionally tied to their children and make financial decisions they would never rationally make for anybody else,” adds Rich Ramassini, a certified financial planner and director of strategy and sales performance at PNC Investments.
This isn’t the first time parents are financially helping out their kids in major ways: 52% of college graduates who recently bought a home got help from friends or family while at college, too. They received an average of $41,500.
But all this giving has a price. “After decades of work and saving, there’s a substantial proportion of baby boomers giving up luxuries and facing a less certain retirement to help their children,” the report reveals. Just “when older workers and retirees are planning or enjoying their retirement years, they’re having to make real sacrifices to help secure the future of their children and grandchildren, too.”
Indeed, more than one in seven say that they’ve had to accept a lower standard of living as a result of lending money to younger generations. Almost 14% say they feel less secure about their own future because of their efforts to help family or friends buy a home. And fully 7% of those who helped younger buyers say they had to postpone retirement.
Many others will feel the impact — even if they don’t realize it yet. Indeed, data from financial site NerdWallet shows that the median household retirement savings for those ages 55 to 64 is just $120,000. That’s far less than what experts say they’ll need: Fidelity recommends that by age 55, you should have 7x your salary socked away. (And it’s also important to note that you may have to pay a gift tax on gifts over $15,000.)
Experts say it’s a big no-no to give your kids money for a home if you haven’t saved enough for retirement. “As much as we love our kids and want to help them we must take a cue from the airlines: put your oxygen mask on before helping your child with theirs. Helping your kids with buying a home should not come at the expense of your own retirement,” says Mitchell C. Hockenbury, a financial planner at 1440 Financial Partners in Kansas City.
Certified financial planner Bobbi Rebell, host of the Financial Grownup podcast and co-host Money in the Morning podcast says that “if you are more than set for retirement and can afford to help with a down payment for an adult child that is mature enough to handle the responsibilities of being a homeowner (financial and maintenance) go for it.” But “if you are not sure-hold off. Think about the kind of conversation you would have down the road asking them for money. Or the guilt they would feel if they found out you had put yourself in a bad financial situation to help them and now they had to come take care of you.”.
Of course, many parents feel guilty if they can’t help their kids with something like a house. But Rebell says you can help in other ways: “Maybe you have them live at home so they can save for a down payment. Maybe you work with them to get them to a situation where they can get a lower cost loan, or put down a lower down payment.”