A reader got in touch recently to ask what do with a cash gift his children received from their grandparents.
“It was given with an eye to the future as a contribution towards a down payment,” he wrote. “What is the best thing to do with it since they are minors?”
It looks like a new frontier has been crossed in worrying about the affordability of houses. Grandparents are now giving kids money to buy houses a decade or more in the future.
The Canadian Real Estate Association reported this week that the cost of the average resale house in Canada was $688,208 in May, up 38.4 per cent on a year-over-year basis. Average prices in Vancouver and Toronto were above $1-million, Victoria was at $810,000 and Hamilton was at $879,000. We’ve seen numbers like this for months now and people are starting realize that housing costs are rising beyond the means of many young buyers.
We know parents and grandparents are commonly helping adult children buy houses. A recent report from Mortgage Professionals Canada found that about 33 per cent of first-time buyers in 2020 got some form of financial assistance from family members. This assistance is totally understandable because home ownership is a Canadian value and, in recent years, a proven wealth-builder. Parents and grandparents are worried that their kids and grandkids won’t be able to participate.
But a residential real estate market supported to a significant extent by family money is at odds with our image of home ownership as almost an entitlement for anyone who works hard. What happens to the young adults who aspire to own, but don’t have parents and grandparents with the means to help? It’s past time for politicians at every level to stop ignoring the soaring cost of homes and announce a housing strategy that address affordability. Build more houses, tax housing gains, boost property taxes – pick a solution and get moving.
As for the generous grandparents who want to help with house down payment money, one solution thought is to open in-trust accounts for their granddaughters at an online brokerage or through an adviser. The parents of these children could also open the account. Suggestion: Take advantage of the fact that the money won’t be needed for at least 12 to 15 years and invest in a growth-oriented balanced ETF.
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Rob’s personal finance reading list
What next for the rookie investors who crushed it in the pandemic?
Thoughts here on how to pivot from the kind of speculative investing that has been so profitable lately to an approach that is sustainable for the long term.
Do you have the right size air conditioner?
If you don’t have central air, a room air conditioner can be a highly worthwhile purchase. Sleep better, be more productive. Here’s some guidance on matching your room with the right size a/c unit.
The myth of the ‘good billionaire’
Warren Buffett is featured in this New York Times essay. “There is no way to be a billionaire in America without taking advantage of a system predicated on cruelty, a system whose tax code and labor laws and regulatory apparatus prioritize your needs above most people’s.”
How to fix a broker zipper
Yup, fixable. You don’t have to junk your jacket or pay someone to replace the zipper.
Ask Rob
Q: I have a question about my dad’s old age security (OAS) that I am unable to find a clear answer to. My dad immigrated to Canada in 2001. He turned 65 in 2021, meaning that he has been in Canada for 20 years, prior to the age of 65. My question is: If he waits until age 70 to avail OAS, will he get higher OAS because of his increased time in Canada, and because of delay in receiving OAS?
A: I asked for help on this one from Doug Runchey of DR Pensions Consulting, but first some background. If you do not qualify for full OAS, a partial pension is possible. “A partial monthly pension is earned at the rate of 1/40th of the full monthly pension for each year of residence in Canada after the age of 18,” a federal government website explains. Also, deferring OAS payments to age 70 from 65 gets you 36 per cent more in benefits.
Mr. Runchey: “You cannot ‘double-dip’ by counting the five-year period [from 65 to 70] as both additional residence and as the voluntary deferral increase. This means that the father could either choose 25/40ths (effectively a 25 per cent increase) or 20/40ths with a 36 per cent increase. In this case, counting the time as voluntary deferral gives the higher amount. Service Canada is supposed to automatically give him the greater of the two amounts.”
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Wondering how much time and money you can save by paying down your mortgage? This calculator can help with answers.
The money-free zone
Ten great female Motown artists you’ve never heard of. Turning to female Motown singers you have likely have heard of, may I suggest a listen to Heatwave by Martha Reeves?
Tweet of the week
A humorous bull market take on what diversification means today.
In case you missed these Globe and Mail personal finance-related stories
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More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing ... and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
