Great inheritance debate: Should parents help kids buy a house

As research reveals seven out of 10 parents aged over 50 intend to give their children an early inheritance, partners Rory Gibson and Angela Mollard give a candid insight into their own conundrums with their blended family.

Like most Australians, we’ve worked hard to get where we are. We’ve held down jobs, raised families and navigated some major life events: Rory lost his wife to cancer in 2010 and Angela has been through divorce.

When we became a couple a decade ago, the last thing we thought we’d be doing is handing over money to our kids.

We have five of them between us – aged between 21 and 31 – and having provided them with a good education we anticipated our later lives would be full of adventures and, if our offspring obliged, some time with the grandkids.

If they wanted to buy a house, they needed to work their butts off to afford it just as we had.

But those beliefs came crashing down as we sat in Yamba’s Pacific Hotel late last year celebrating a decade together.

All our kids were there with their partners and Rory’s three sons, Ben, 31, Angus, 30, and Will, 28, were debating what they’d do with their dad’s house when he died.

Rory Gibson.

Angela Mollard. Picture: Steven Chee

Two were in favour of keeping it as a holiday house until Ben, who lives in Brisbane, piped up: “We’ll have to sell it because that’s the only way I’ll ever afford to buy my own house.”

It was a sobering moment and not just because they were discussing their dad’s demise.

As Rory says: “In the past I’d held the view that young Australians could buy property if they really wanted to. They just had to do what we’ve all had to do – save hard for a deposit and have realistic expectations about the first property they could afford.”

But that conversation forced us to look at home ownership through our kids’ eyes.

A perfect storm of limited housing stock, cost-of-living pressures, population growth via immigration, cautious lenders, a scarcity of skilled tradies and a reluctance by government to release land and incentivise developers meant it was a seemingly impossible goal.

Even Angela’s daughter Eliza, 24, who is in the military with all its benefits, couldn’t see how she could afford to get on the property ladder.

As for her younger daughter, Lilibelle, 21, a $40K university debt and living in Sydney, where the median house price is $1.65 million, likely meant she’d also be waiting for her mum to pop her clogs before buying a home of her own .

So here we find ourselves contemplating what seven out of 10 parents are also considering: namely giving our kids an early inheritance so they can put the cash towards buying their first property.

While neither of us is being pressured by “inheritance impatience” – a growing trend which sees younger generations expect a hand-out from their parents or grandparents – we can see the bind our kids are in and why the “great wealth transfer” is suddenly a huge topic of conversation among our friends.

We don’t expect anything from our own parents, who are still alive, but we can see that an giving our kids an inheritance with “warm hands” while we’re still alive could genuinely make a difference.

As a re-partnered couple our finances remain separate but we share the same concerns.

What if we gift them cash and the kids split from their partners? What if we need our money for aged care? What if our kids are internet shopping or holidaying in Bali while we scrimp to help them?

While neither of us received financial advice from our parents, we’re determined to have these conversations with our kids.

Hindsight and wisdom have taught us that the 20s could be a magic decade for young people to set themselves up if only they have the tools and desire.

Yet it’s also a period when having a good time takes precedence over striving for a home-loan deposit.

If we can manage it, could a small sum towards a property deposit be the key to their future financial stability?

RORY’S STORY

He can build them … but can’t afford to buy one.

My youngest son Will and his partner Emma adore their little boy Navy and would dearly like to give him a brother or sister.

But they’ve put off trying for a second child because they’re doing their utmost to find a house they can afford.

And, as is the case for so many young people, their dream of owning their own place where they can raise Navy and any future siblings seems beyond their grasp.

“Emma and I are both working our butts off and we’re trying to save for a house but we’re paying nearly $800 a week rent and, you know, a baby isn’t cheap to run,” says Will, who turned 28 last week. Emma is 26 and Navy is 18 months old.

That $800 rent doesn’t get them much. They live in a low-set brick duplex on a busy road on Queensland’s Gold Coast.

They say they are lucky to be there given the sky-high demand for accommodation on the Glitter Strip.

Rory Gibson with Will Gibson, Emma Williams and baby Navy Gibson at their Miami home on the Gold Coast. Picture: Glenn Hampson

Will is a carpenter. He employs two apprentices and has no shortage of work. The irony is that the houses he’s knocking up are nothing flash, but he can’t afford them.

“They are just basic houses but they’re being sold for $800,000 plus,” says Will.

“By the time we could save a deposit for that sort of sale price they’d be worth $900,000. I just can’t see how we can ever afford our own place anywhere near where we have to work.”

Will and Emma’s predicament, and that of so many of their friends, has forced me to change my mind about the difficulties facing young people trying to get ahead.

It’s also made me consider giving them a hand financially because I can’t see governments pulling their fingers out anytime soon to fix the housing supply crisis.

I own my own home and believe I have enough superannuation (just a touch over $500,000) to see me out. But who knows what will happen as I get more decrepit and possibly require aged care?

I have some other savings and it is this that I’m considering sharing with Will and my other two sons, Angus and Ben, to help them amass a deposit to buy a home.

But I’m not sure whether it’s prudent to part with the cash given the uncertainties surrounding one’s health as we oldies limp into the twilight years.

If I hand over money as a gift it could affect my chances of receiving a part-pension. And if the boys’ relationships fail do their partners have a claim on it?

I could probably safeguard against that happening by making the money a documented loan with appropriate caveats, but again I’m not sure how that affects my status in regards getting a part-pension. Or how do I go about pulling it back if I need it for something else.

Will and Emma have never asked me for money, but they often ask my for advice and we talk about their finances a fair bit.

I know they’re doing all they can to save money — Will does an occasional small handyman job on a weekend so he and Em can enjoy a Thai takeaway as a treat.

“We’d love to be able to do this ourselves but we just can’t save fast enough,” says Will.

“But if Dad could help us out we’d be super grateful … although he shouldn’t have to.”

Will and Emma, and people like them, are exactly who we as a society should be giving a helping hand to.

So to hell with keeping money aside so I can be fed a better class of gruel in an aged-care facility some day.

I’ll get far more joy out of seeing my kids and grandchildren living in their own place — something we took for granted when we were their age.

ANGELA’S STORY

“I don’t want her to make the same mistakes I did.”

When I was 21 I didn’t have a care in the world. A good job, no university debt, opportunities to work and live overseas and affordable rent meant my 20s were independent and fun.

Which is why I feel sorry for today’s young people with the cost of living, crazy rents and university debt.

My eldest, Eliza, had her degree paid for by the military but her sister, Lilibelle, faces this triple whammy of challenges.

She’ll complete her Bachelor of Communications degree at the end of this year with a $40,000 HELP (formerly HECS) debt.

She’s had a part-time marketing job throughout her degree and has been living at home where she pays $50 board a week. Next year she’d like to rent with friends.

My concern is that high rents in Sydney combined with her university debt will mean she will be unable to save and therefore any hopes of buying property will be diminished.

But what if in the coming years I could find some way to contribute $20-$30K to the money she saves to get a foothold in the property market?

Naturally, she has mixed feelings.

“It’s a generous offer,” she says, “but I’d like to be independent and do it myself. I think it would be more rewarding and I also fear that Mum being invested in my finances would put a strain on our relationship. There would be too many fingers in the pie.”

Angela Mollard and her daughter Lilibelle, who is the final years of her degree in Sydney. Picture: Rohan Kelly

I understand her concern. I’ve been known to chide her for her online shopping and am aghast on the occasions she spends $12 on a matcha latte (though I note she’s bought the powder and is making her own at home as she saves for an overseas holiday in her university break).

That said, my parents probably felt similarly when I dropped my cash on an ABBA record back in the ‘80s.

But with the Australia Institute reporting that housing affordability is so bad that houses now cost 16-and-a-half times the mean annual income versus nine times 25 years ago, like those seven in 10 parents in the Australian Seniors report, I want to help Lilibelle, and her sister, with a warm inheritance if I can.

I’m keen to know the implications of giving her money as a loan versus a gift.

I also need to know how it might impact any potential pension when I retire.

Surely it’s possible to do this in a stress-free manner that benefits her and doesn’t compromise our relationship? Are there any government incentives for parents to help their kids?

That said, I’m not sure where I’d find the money with my mortgage currently gouging me.

Part of my motivation for helping her and her sister comes from regret that I didn’t manage my own finances better in my 20s.

I could be retired by now if I’d invested more wisely, bought property earlier, contributed more to superannuation and didn’t let money sit in a no-interest bank account, effectively going backwards.

While Lilibelle says she’s concerned, like most of her generation, about home ownership, she’s also determined to enjoy her 20s.

“You’ve told me about that guy you know who now owns eight properties because he never went out in his 20s but these are my prime years.

“I don’t ever want to be so committed to buying a house that I couldn’t have a single ounce of fun. If I died tomorrow I’d be so annoyed if that was what I’d focused on.”

While she appreciates that wealthy parents are in a position to help their children without missing the cash, she’s also concerned about the sacrifices I’d have to make to help her. Likewise, she believes as a whole generation is left out of the property market, it will be incumbent on the government to adopt more policies to enable home ownership.

In the meantime, she’s put her savings in a term deposit and has invested in an ETF (exchange traded fund).

But should she be paying off her HELP debt which, due to interest charges, is growing every year? Given that the debt only needs to be repaid when her salary reaches $54,435 is it better to delay paying it back?

In the past Lilibelle says she’s found it frustrating that I judge her spending: “Sometimes I felt I had to hide stuff I bought,” she says.

But since she started saving to go to go overseas, she realised it’s not as difficult to save as she thought.

“I’ve hardly bought anything and I’ve realised you can save if you put your mind to it.”

While she fears she won’t own a home by the time she wants to have a family, she’s also intent on living in the present.

“Money should be something you work hard for and enjoy. I like buying a coffee several days a week because it brings me joy.”

NEXT WEEK: The finance experts give their advice and issue a stark warning.

Originally published as Great inheritance debate: Should parents help kids buy a house