How To Help Your Kids Get Their First House
This might be controversial, but it’s an important issue and it needs to be addressed.
We live in a world of the haves, and the have nots.
And alarmingly, there’s a growing gap between those on the real estate ladder and those who aren’t.
We need to decide which side we want our kids to be on, because if they get left on the wrong side, there’s every chance they’ll never make it across.
And this means them getting into the market as early as possible.
They Need Education And Guidance
The harsh reality is that most children learn about money by listening in on their parents argue about bills.
The fact is, by the time they’re adults, a lot of the programming around money (and a whole bunch of other things) has already been done.
Their relationship with money, and their views around spending, saving and investing are largely set.
It’s what we say to them, and what they overhear along with our overall attitude to wealth which affects them most.
And it’s not easy.
But you can teach your children the lessons they need, and help them into the property market.
Here are some initiatives you should consider.
Basic Money Management
This is a big one because when kids get their first job out of school, a regular pay-cheque can quickly lead to a spiral of impulse spending, debt and phone calls to mum and dad asking for help.
The big items here are where money goes, and the importance of budgeting.
It’s also important for them to understand the difference between needs and wants.
One good strategy is to teach them when you go shopping because you can teach them to make choices about what to buy.
And show them that the money you save at the supermarket, can be spent somewhere else.
Making them realise that money is limited is vital, and …
… they can only spend each dollar once.
The dollar they save today can be saved, and even invested, and spent on something even more amazing down the track.
Delayed gratification is one of the most important lessons they’ll ever learn.
Saving
Saving comes naturally to children.
They know that cash is valuable, and enjoy having a piggy bank to collect as much as they can … and then spend it.
This is great, because they learn to save and they experience the benefits of it.
And once they have a part-time job, you can take this up a step.
Encourage them to have a transaction account for everyday spending, and a savings account to put some money aside.
This becomes more important the older they get because they can use this money for bigger purchases such as an overseas holiday or a car.
Another useful account is a long term investing account. This can be used for just savings, or to invest in something low risk such as a managed fund, with the aim being to turn it into a house deposit.
If you want, you can add restrictions to an account like this so they can’t access it until a certain age.
And as an extra incentive, you can offer to contribute to their long term savings account.
This could be on a dollar for dollar basis, or a fraction of it like 20 cents for every dollar.
Another option is to gift them money when they achieve certain milestones such as finishing high school and university.
HINT: Your gifts and incentives don’t need to end with your own children. Your grandchildren would certainly benefit from them too.
Investing
It’s important to send your children the right message about money, so make sure you have conversations about investing, the real estate market, finance and so on in front of them.
Give them updates on what’s happening, and how it affects them.
And ideally, use what’s happening in the world as a starting point.
For example, when interest rates move, you can show them how this will affect repayments, borrowing capacity and the flow on effect to house prices.
When they get a bank account and start saving, give them an understanding of how much it might cost to buy a car, and how much they might need to save a house.
Even better, involve them with your financial activities.
For example, if you refinance a loan you can show them what you’re doing and why.
If you purchase an investment property, show them the figures and show them the projections.
This way they’ll understand what you’re doing, and what it’ll mean in the long term.
Then, show them the pictures of the house, and if it’s close by, make sure you show them around (while it’s vacant of course).
Perhaps even get them to help with property research by calculating median house prices and rents in a suburb.
Or to estimate a rental income by searching for similar properties.
They’re all good, practical exercises and they might save you some time too.
Financially savvy kids grow into wealthy adults
Another good time to discuss these matters is when they’re being discussed at school. You might be surprised to know that many school curriculums incorporate personal finance into them.
HINT: We welcome children into meetings about investing, and as long as you’re comfortable with the conversation, we’d love to have them.
OK, let’s keep going.
I know that so far we haven’t even helped them buy their first home.
All this is vital groundwork so they understand why it’s important to get onto the property ladder as soon as possible. And they have the basic education to do it and can speak the language of money.
The Serious Discussions
Another way to teach your kids is to have in depth, serious discussions with them about property.
These are best had when they’re thinking about their future, to help them consider where they live, whether they rentvest (we have an article on this here) or buy their own home.
This way they can plan out their future, rather than live reactively like most people.
After all, owning a home doesn’t tie them to it. It can be an asset they own and rent out.
You can challenge their ideas and force them to consider other options. And help them realise that the sooner they’re on the right financial path, the sooner they’ll reap the rewards.
You can also show them the costs of owning property, and what they’ll need saved up to get in.
Plus, they should know some basics about topics like tax and superannuation.
At this stage you may want to point them in the direction of some financial education.
We have an abundance of resources on our website including eBooks, articles and our Masterclass.
You may also want to give them some basic financial books such as Rich Dad, Poor Dad and The Richest Man In Babylon.
Doing all this arms them with valuable knowledge they can draw on when they need it.
The Bank Of Mum And Dad
The bank of mum and dad is fast becoming the biggest way you can help your kids into the market.
It’s where you allow your children to tap into your equity to use as a deposit.
This could be done by allowing your house to be security for their loan.
Or better still, by borrowing money against the equity in your home and giving it to your children.
You could potentially give them straight cash too if you have it.
Be careful though because you’ll need to understand what the implications of each option are from a risk and a tax perspective.
Make sure you speak with a licensed professional before doing this.
When They Purchase
Another way you can help them is when they purchase.
Help them through the finance application process.
Make sure they know all the checks they should do before going ahead, such as a building and pest inspection and all the checks are done by a solicitor or a conveyancer.
And I’m sure your insights when inspecting a house will be invaluable.
Just knowing you’ll be there for them could be one of the best gifts of all.
Let’s Help You … Help Them
One of the best strategies for first home buyers is rentvesting.
It’s where someone rents where they want to live, and purchases a property as an investment.
This way they can live where they want, and still get into the market and grow their wealth faster by targeting a top quality investment anywhere in the country.
We’d be delighted to explain how this works, and give you and your child some options to consider.
In a world where young adults delay getting into the market (to their detriment), this strategy could get them on the right path from a young age.
Below you’ll see a form you can fill in to book a time for you all to talk with one of our strategists about rentvesting.
Need To Boost The Bank Of Mum And Dad?
It’s sad to think that so many young adults are relying on their parents to help them into the market.
However, it’s a reality we all need to face.
And if you want to help your kids out when they need it, you’ll need some equity behind you.
The best way to create this is by investing in real estate, and we can show you how to do this so when they come to you for help, you’ll be there for them.
Enter your details below and we’ll set up a time to get you sorted out.