Wondering if your kid(s) will be able to afford a home is every parent’s worry. With the skyrocketing home prices in Vancouver and Toronto in recent years, current homeowners with a child or a few are not so sure that their offspring will be able to afford homes in the cities they grew up in.
In an interview with CTVNews.ca, Toronto-based financial planner Shannon Lee Simmons shared one of the most common conversations with parents lately is what they’ll do if their child/children cannot afford to buy something. Annie Kvick, a Vancouver-based financial planner says that thinking of saving up cash for future housing for your child is a good problem to have, but warns parents that they should check their own financial situation first.
As a result of the conversations above, CTVNew.ca asked the two financial planners to share what actions the parents can take to save up for their child’s/children’s future housing dreams, and below are what they shared:
Save Future Funds via a Trust Fund
Kvick shared that this course of action will not be for every family because situations differ. The parents who opt for this can choose to go for an informal in-trust account or a formal in-trust account. An informal in-trust account holds the money until the child reaches legal age and the money is not subject to taxation. The downside is that the child can just use the money on anything after the holding period. A formal in-trust account allows the parents to dictate when and for what the money can be used for although it also often involves hefty accountant and lawyer fees.
Find a Way to Maximize Your Tax-Free Savings Account
The beauty of TFSA contributions is the parents will have full control of the money and will not have to pay taxes for the money’s growth. The parents can choose to give as much or as little of it to their offspring, but they really should just save it for their own retirement funds according to Simmons.
Decide to Downsize Later
Downsizing later allows the kids to move back home so that they can save up for their own future downpayment on their dream home. Simmons adds though that ideally, the children would be contributing some rent money or some extra cash for utilities and food so as not to deplete the parents’ resources. Kvick also adds that the longer the parents stay in their home, the higher the property’s value will be, which can allow parents to give more should they decide to help pay for their child’s or children’s future home(s).
Invest in Income Property Carefully
Simmons shares that some parents with a lot of equity are tapping into that equity to invest in income property with the intention of passing that investment to their children later when they retire. For this to work, investing in low-maintenance property like a townhouse or a condo is ideal. The next step is finding a condo or townhouse that can be rented out but with the rent being high enough to cover both mortgage and maintenance costs. Kvick shares that this strategy can offer huge returns if housing prices continue to rise.
Familiarize Your Children to the Stock Market
With the memory of the 2008 financial crisis still very fresh even in the minds of millennials, now is the time to point out that in the same period of time, house prices have been soaring up! Children and young adults need to realize and understand how to build wealth so they’d know how to protect it. By introducing children to stocks and teaching them how it works and letting them manage their own stocks, they’d be able to understand more the value of cash, investments, and their future.