Should I feel guilty about this? If you read press coverage about the bank of mum and dad,you might suspect so. But when I die,my kids will get everything I own anyway. Why not help them accumulate assets and provide stable housing when they are young adults and need it?
One of the new big lenders on the block.Marija Ercegovac
The is somewhere between 55 and 60 years old. We forget this. We forget that the cohort currently receiving the most inheritances are Baby Boomers,often right when they can access their super and are nearly retired.
But that’s not when most people need more money. Spending needs drop off dramatically at that age. No kids to support. No house to pay off. So dramatic is this decline in spending that most retirees don’t actually spend down their savings – they begin to,or continue to,save more of their lower income.
The bank of mum and dad is a way to fix this lifetime financial imbalance by providing a cash gift for a home deposit or acting as a guarantor on a home loan. It is a sensible way to pass wealth to your children when it is useful to them. No point having your grandchildren grow up far from you or in financial stress,only to give your children money when they themselves are nearly retired and your grandchildren are grown.
Just give them money in advance. That’s what I’ll be doing.
My dad did this for me and my siblings more than two decades ago,and it set us up financially and hugely improved our housing stability as we raised his grandchildren.
It is true that access to the bank of mum and dad is as unequal as the wealth distribution of that age cohort providing the support. But getting access to this inheritance earlier,when it is more helpful,has the immediate effect of flattening the distribution of wealth – by spreading wealth among younger and larger family households rather than concentrating it in elderly households with few occupants.
And in the long term,it doesn’t change ultimate wealth distribution of future generations because it simply changes the timing of this one step. Instead of gaining a larger inheritance at age 60,you get a smaller inheritance today when the money is useful,and a smaller one later.
One concern about widespread use of the bank of mum and dad is that it could trap adult children into unsustainable housing debt. This is a risk. But continuing to rent is a risk too. In recent years,many suburbs have seen rents rise more than 50 per cent. Renting for life is a risky liability – it is just unpriced.
A young family recently helped into home ownership would have been financially squeezed as their mortgage rate and repayments increased since 2022. But if that same young family had continued to rent,they would have been squeezed by their rent increase instead.
Another concern is that extra money from parents merely bids up home prices,making it more difficult for others to buy. But this concern is greatly overblown. The price of housing,or any other asset,is based on its return,in the form of rental income or occupation. If the price rises due to more bank of mum and dad buyers,others,such as investors,will buy fewer homes as their return on investment is diminished. Asset markets are self-correcting in this way.
What about the concern that giving money to help your children (who are usually by now adults) buy a home makes them lazy and entitled? I’ve heard that too. But if your children by their 20s or 30s are lazy and entitled then other factors might be at play.
In a perfect world,getting financial help from parents shouldn’t be a prerequisite for home ownership. Every young adult should be able to access a reasonable home,just as they should be able to access reasonable medical care,schooling for their children,and more.
And it is not a prerequisite today. Many areas of the country have reasonably priced housing where young people routinely buy homes independently. But if parents want to help their adult children to live in certain places,or a buy a home younger,that is their choice. And in my view it’s a choice that will improve your child’s life and their financial security.
Dr Cameron Murray is chief economist at.
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