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Should you help the kids?

Jan 29, 2014

Previously many parents felt their kids should work for a house purchase as they had but there is a new philosophy to help during their lifetime due to the price of houses and larger down payments.

Here are some points to consider.

- Do you want to help all your children equally regardless of their situation? If so decide how much you think you can give or loan to them and ensure you don't overextend with the first one and run out of money for the last.

- It is advisable to not put yourself into debt by increasing your own debt or co-signing a bank loan as you may end up responsible for the debt.

- How is the financial strength of the child? If they have a good job and good credit risk you could lend them money at a low, standard or even zero interest rate with little risk to you. If your child is not in such a strong position but wants to purchase a house or condo you should ask yourself
if this is the right time to buy real estate? If they get a loan can they pay it back? Will it cause family stress? If they receive a financial gift will they still be able to manage the mortgage payments? Maybe you will advise to continue renting or living at home to have more time to save.

- If your child is married and you are giving a financial gift to them keep in mind if they divorce soon after the ex-spouse has been handed 50% of the total gift. To avoid this do not make a gift but instead set up a standard loan with an interest rate or a 0% interest rate or a demand loan that isn't meant to be paid back. This makes it technically a loan and not part of their family property. In the event of divorce the parent could demand the loan back.

In the end part of being a parent is knowing when to help and when to stand back.

Adapted from Financial Post