'Bank of Mom and Dad': Affluent families giving average of $145K for kids' first home, report finds
Children from many affluent families are receiving "significant funding" from the "Bank of Mom and Dad" for post-secondary education, a first home and new businesses, a study of high-net-worth households has found.
The report, by IG Private Wealth Management, on affluent Canadians and wealth transfer found those with at least $1 million in investable assets have been "reconsidering their finances in ways that prioritize not only their children but the world around them," a news release Tuesday said. That includes giving each child, on average, $145,000 towards the purchase of a first home, the report said.
"Increasingly, Canadian families are viewing wealth created by older generations as family assets, and as means to help their children and grandchildren enjoy a more secure financial future," IG Wealth Management president and CEO Damon Murchison said in a statement.
"However, many parents are also concerned about how and when to leave money to the next generation."
PARENTS WANT TO HELP CHILDREN 'GET AHEAD'
Over the next decade, the report says it is estimated that assets in motion between generations of Canadian families will be approximately $1.2 trillion.
IG cites figures showing that the number of households in Canada with at least $1 million in investable wealth rose to 913,000 at the end of 2020 from 471,000 in 2006, with the total amount of wealth rising to $4.2 trillion from $1.6 trillion.
Among the key findings in the report: 77 per cent of those surveyed say they want to help their children "get ahead," while 86 per cent say they plan on providing financial support — more than $35,000 on average — for children attending college or university.
The parents’ motivations, as mentioned in interviews, included concerns about fees and living expenses, the value of education in finding future employment and a desire to help their children avoid high debt loads after graduation.
Seventy-two per cent of those surveyed were willing to help their children purchase a first home, giving an average of $145,000 per child, at a time of rapidly increasing housing prices in Canada.
A report last month from CIBC found that roughly 30 per cent of first-time homebuyers and nearly nine per cent of existing homeowners received financial help from family this past year to purchase a home.
First-time buyers received $82,000 on average, while "mover-uppers" were gifted $128,000 on average in September 2021.
Although more parents aren't necessarily going into debt as a result, CIBC noted that this creates greater inequality between homebuyers who have help and those who don't.
The survey results from IG, meanwhile, showed that while parents were willing to help their children with their first home, there is less enthusiasm for helping a child with his or her next home (24 per cent) or a vacation property (10 per cent), with mothers appearing less generous than fathers.
On funding a new business, 26 per cent of surveyed parents say they would fund half or more of the startup costs of their child's enterprise.
Between 2014 and 2018, IG notes that the number of people between 25 and 34 years of age who started a new business grew by 80 per cent compared to the 39 per cent increase seen among those 35-44.
DONATING TO CHARITY
Along with wanting to help their children "get ahead," 71 per cent of respondents say they want to ensure their children can manage future wealth, 68 per cent want to avoid "affluenza" and 68 per cent are providing an inheritance.
Other inter-family gifts include a car (52 per cent) and living expenses (51 per cent).
Meanwhile, the IG study found that two-thirds of affluent households currently donate regularly to charitable causes. Twenty per cent also reported that their estate plans include gifts to philanthropic organizations.
"The last two years upended the lives of so many and led Canadians to consider charitable giving, not just as a good thing to do, but as the right thing to do," Murchison said.
"With more Canadians incorporating philanthropy into their financial lives, it's an increasingly important part of a holistic estate plan, and a great way to bring families together to think of the larger world around them."
For high-net-worth Canadians, the COVID-19 pandemic and heightened levels of concern about health and wealth prompted many to reflect on their family's circumstances, the IG report says, adding that the relatively short-lived market downturn, government support programs and the speed at which COVID-19 vaccines were developed helped allay those fears and the extent of any financial restructuring.
A number of survey participants also voiced concern, but acceptance, that there may be a financial cost to the pandemic through future higher tax rates.
The report is based on research from Investor Economics and Pollara Strategic Insights.
The Pollara survey included an online sample of 510 Canadians with investable assets of at least $1 million. The study was done between Aug. 5 and 12, 2021, and is considered accurate within 4.3 percentage points 19 times out of 20. The results were weighted based on age, gender and region.