Weekend Reading: Giving With A Warm Hand Edition

CIBC’s Deputy Chief Economist Benjamin Tal raised eyebrows this week when he said that one in five first-time home buyers is getting help from their parents with a gift, on average, of $150,000. Not only are more first-time buyers getting financial aid from the bank of mom and dad (up from 15.5% in 2015) but the dollar amount has more than doubled (up from $71,000 in 2015).

While the main story here is about rising home prices and growing inequality, I wanted to address the topic of generational wealth transfer. According to a J.D. Power study, as much as $700-billion in financial assets is set to be transferred to the next generation in Canada by 2026.

Like it or not, many retirees have more than enough assets to live their desired lifestyle and leave a significant estate to their beneficiaries. Why not incorporate some planned monetary gifts to your children or to a favourite charity during your lifetime?

Assume you live a long and healthy life to age 95 or so. That’s not as far-fetched as it sounds. FP Canada’s assumption guidelines suggest a 65-year-old male today has a 50% chance of living to age 89 and a 25% chance of living to age 94. A 65-year-old female has a 50% chance of living to 94 and a 25% chance of living to 96.

Now assume you have more than enough assets to meet your spending needs for 30 years, plus you plan to remain in your home. 

Would you prefer to leave a large inheritance to your children at age 95, or give them smaller and potentially more meaningful amounts at key milestones such as buying a first home, starting a business, paying for post-secondary or an advanced degree, or filling up the grandkids’ RESPs?

When I discuss the idea of giving with a warm hand with my clients there’s often resistance because of a fear of spoiling their kids. They often see financial struggles as a rite of passage, as if living with four roommates in a rundown two-bedroom apartment while you work part-time to pay your way through school is the way to build strong character.

But you can give your young adult children a financial leg up without turning them into spoiled and entitled brats. 

It’s about acknowledging that your kids are coming of age in a different world where affordable housing and education, defined benefit pensions, and company benefits have all but disappeared. We’re living in a gig economy with temporary contracts, no benefits, and housing and education costs that are spiralling out of control.

Your 20s and 30s are filled with so many competing financial priorities. Why not, if you have the means to do so, help your kids through this period so they can get started on the right foot?

This doesn’t mean they’re financially tethered to you. You’re not paying their cell phone bill and making car payments when they’ve left the nest. But smart and strategic monetary gifts at appropriate life milestones can help your kids through what’s becoming an increasingly difficult financial environment.

Of course, everyone needs to put on their own oxygen mask first before assisting others. Make sure your own retirement needs are met before making large financial commitments to your kids. That means not dipping into your HELOC or heaven-forbid your own retirement savings to give your kids a down payment gift.

I’d love to hear your thoughts on giving with a warm hand versus leaving a large estate behind. Let me know in the comments.

This Week’s Recap:

Author Mike Drak finished his excellent three part series on retirement lifestyle design by taking us from thought to action.

• Part one: It all starts with purpose
• Part two: Embracing your Ikigai

I’ll be making my MoneySense debut shortly with an article on growth investing. I’ll share that along with a fairly regular MoneySense column exploring other investing topics.

Promo of the Week:

The American Express Cobalt Card has long been considered the top overall rewards credit card in Canada. Cardholders get 5x points on groceries, dining, and food delivery, plus 2x points on travel, transit, and gas. 

The best part of the Cobalt card, in my opinion, is the flexible points redemption. You can use your points to pay for almost any purchase you make with your card, or transfer your points to other programs like Aeroplan, Avios, and Marriott Bonvoy.

Sign up for the Cobalt card today and you’ll earn 2,500 bonus points for every month in which you spend $500 (up to 30,000 points in the first year), plus a Welcome Bonus of 20,000 Membership Rewards points when you spend $3,000 on your card in the first three months.

Weekend Reading:

Can you buy bitcoin with a credit card? Our friends at Credit Card Genius look at the pros, cons, and pitfalls to avoid.

CBC Marketplace caught two real estate agents on hidden camera breaking the law and steering buyers away from low-commission homes.

A good rebuttal to the bogus Royal Lepage “study” that showed how buying a home is actually cheaper than renting. It’s not even close:

“People are stretched thin both by the actual monthly outlay for ownership versus renting of similar dwellings, plus the gargantuan size of down payments required to even get to the position of having a large mortgage.”

You might be able to hedge your rising heating bill before this winter by locking into a fixed rate for your household energy needs. I did this thanks to a nudge from U of C economics professor Blake Shaffer:

Here’s Nick Maggiulli from Of Dollars and Data on why it’s never too late to change.

Millionaire Teacher Andrew Hallam answers five common questions people ask him about investing.

Frugal Trader from Million Dollar Journey gives some excellent advice on how to become a millionaire.

Finally, here’s former Vanguard CEO Jack Brennan offers three tried-and-true wealth building tips in this Acorns interview.

Enjoy the rest of your weekend, everyone!