When clients come in for advice about saving for their grandkids, financial planner Jason Heath says it’s usually about setting aside money for college. But with the housing market increasingly out of reach for many young people, he’s seeing more grandparents who want to help out with the cost of buying a home.
“It used to be that people would budget in the long term for paying for some or all of a postsecondary education or a wedding gift, but I’m finding people are now budgeting for home down payment gifts,” said Mr. Heath, managing partner at Objective Financial Partners in Markham, Ont.
“I feel like that wasn’t a thing until the past 10 years; it certainly seems to be more of a Vancouver and Toronto trend.”
Mr. Heath and other financial advisers say it’s unsurprising that parents and grandparents are more worried about a child’s access to the real estate market than an education. After all, most students can at least get loans to help fund their post-secondary education, but mortgages are much harder to access unless you have a lot of savings and a high income.
Samantha Sykes, a senior investment adviser with Raymond James Wealth Management, said which expense grandparents choose to save for varies according to how other members of the family are helping to invest for a child’s future.
One challenge facing grandparents wanting to help out is that there are no tax-sheltered ways of saving specifically to help a family member buy a home.
Saving for school is straightforward: the Registered Education Savings Plan is a very effective program that offers government grants and shelter from capital gains tax. You can open one for a child as soon as they’re born.
But there’s no equivalent for saving for a down payment. The First Home Savings Account, a great tool introduced in 2022 that combines the tax exemptions of the Tax Free Savings Account and the income tax deductions of a Registered Retirement Savings Plan, can’t be opened on behalf of a child or grandchild. And it can only be opened once the account holder turns 18.
Grandparents who want to focus on helping their grandkids with purchasing a home could still make use of an RESP. The investment income and grant money is intended to be used for school, but RBC financial advisory consultant Lucas Gareri said the original contributions can be withdrawn on a tax-free basis and then gifted to a grandchild and repurposed for their FHSA.
For people with young grandchildren who want to use the growth from their investments specifically to fund a down payment, maxing out their own TFSA is the first course of action recommended by Ms. Sykes. That money can grow tax-free, and it can be easily gifted once a home purchase is about to take place.
If your TFSA contributions are already maxed out, she said opening a non-registered investment account could be the next option. The capital gains would be taxed, but there’s still opportunity for growth.
High-income individuals can also consider using a family trust, although these can be complicated and have caveats, such as a requirement for them to close after 21 years.
Lastly, if your grandchild is close to turning 18, waiting until they can open an FHSA and gifting them money to put in the account is the simplest and most effective way to ensure that they benefit from the growth, tax refunds and stipulations that the money be used for real estate.
For younger children Ms. Sykes said the RESP’s benefits and growth opportunities are simply too good to be ignored, and grandparents should focus on contributing to that account first.
Ms. Sykes adds that people shouldn’t forget about the importance of saving for education because of their anxiety around the housing market. Certain types of schools are hard to get student loans for, and the rising cost of rent and other living expenses has dramatically increased the overall cost of going to school.
“I’m finding clients are doing the dual track: saving for their kids’ education while also saving for their down payments, and they’re still finding that they’re coming up short,” said Ms. Sykes, who said kids often need financial support beyond their loans and RESPs.
“It’s a real challenge out there.”
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