Many Canadians may scoff at the idea of arranged marriages – all the while actively endorsing a culture of arranged mortgages for their own children.
A recent report shows that the average gift for a first-home down payment is a staggering $115,000. This is basically a Canadian dowry.
The culture of homeownership runs deep in Canada. While there are many emotional and financial benefits to homeownership over the long run, there are locales where the numbers don’t add up. And they haven’t been adding up in many parts of Canada for a while now, yet the pressure to become a homeowner remains.
“I noticed that my spouse and I had very different approaches when it came to making decisions together, such as renting or buying a house,” said Gizem Turna Cebeci, an assistant professor at Fenerbahçe University in Turkey. “Then I realized that our parents also differ in a very similar way. I was curious about when these behaviours were formed.”
She’s the author of a new study that sheds light on how financial biases are transmitted from parents to children. Biases such as overconfidence (excessive faith in one’s judgments), loss aversion (preferring to avoid losses over acquiring equivalent gains) and the illusion of control (overestimating one’s ability to influence outcomes) are often passed down, shaping our financial decision-making in ways we may not even realize.
How might these inherited biases be influencing an entire generation’s approach to homeownership in Canada?
Consider the current state of our housing market. Skyrocketing prices have pushed homeownership out of reach for many young Canadians, creating a stark generational divide. Those who benefited from more affordable housing in the past may struggle to understand why their children can’t simply follow in their footsteps.
This is where inherited biases come into play. Parents who experienced success through homeownership may unconsciously transmit an overconfidence bias to their children, encouraging them to stretch beyond their means to enter the market. This overconfidence might be further fuelled by the growing trend of parental financial assistance, with the average gift size breaching $200,000 in B.C. While generous, this level of support may skew perceptions of affordability and reinforce unrealistic expectations.
Alternatively, loss aversion may lead young adults to feel an overwhelming pressure to buy, fearing they’ll miss out on potential gains if they don’t act now. This fear of missing out can drive people to make financially unsound decisions, prioritizing homeownership at the expense of other important financial goals.
But here’s the uncomfortable truth we need to confront: The path to financial security that worked for previous generations may no longer be viable. An entire cohort of Canadians may need to “de-bias” themselves from the singular focus on homeownership at any cost.
This isn’t to say that owning a home is inherently bad or unattainable for everyone. Rather, it’s about recognizing that our inherited financial biases may be clouding our judgment in a currently warped marketplace.
We must also acknowledge the emotional premium placed on homeownership. There’s an undeniable allure to being an owner rather than a renter. But the question we need to ask ourselves is this: How much of a premium are we willing to pay for this emotional satisfaction? In today’s market, that premium comes at the cost of financial flexibility, career opportunities and even personal relationships.
The current housing crisis is robbing many of their personal agency. Young Canadians are delaying major life decisions – having children, leaving unfulfilling relationships, pursuing career changes – all because of the financial handcuffs imposed by housing unaffordability.
It’s crucial to challenge the notion that homeownership is the only path to financial stability. This seems to be gaining traction in the U.S., with a report released in February by Realtor.com indicating it was cheaper to rent than buy a starter home in every single one of the top 50 cities in the country. For those with discipline, renting can actually be a savvy financial move. If the difference in monthly costs between renting and owning is invested wisely, it’s possible to build significant equity over time. This approach requires a shift in mindset – one that values financial flexibility over the traditional markers of success.
Instead of passing down the intractable ideology that homeownership is the only responsible way forward, perhaps we can pass down the idea that being responsible with our financial choices means figuring out the plan that makes the most sense for the hands we have been dealt.
Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.
