Finance between generations

It is fascinating to look at the differences in behaviour and values when comparing different generations.

The Baby Boomers are made up of children born into families recovering after the end of WWII. This generation pioneered two-income families, and as a result they have lived in relative comfort and prosperity. It will be interesting to see how the prevalence of technology will affect the development of Generation Z (1995 – 2009) and Generation A (2010 onwards). However, Generation Y (1980-1994), and how they are dealing with money, is an issue of interest.

There is no doubt Gen Y, the children of Baby Boomers, are the driver of the next economy. Currently in their 20s and early 30s, Gen Ys tend to be highly educated, tech-savvy and content to delay marriage, children or a traditional career until later in life. Gen Y have been referred to as ‘KIPPERS’ (Kids in Parents’ Pockets Eroding Retirement Savings), with the latest Australian census data showing that nearly a third of young adults are still living with their parents. Extended tertiary education and high living costs are contributing factors, and a significant proportion of Gen Y are seemingly happy for their parents to support their lifestyles. But the primary issue for Gen Y is soaring property prices, with International Monetary Fund data reporting that Australia had the third highest house price-to-income ratio in the world in 2014. Furthermore, it now takes first home buyers an average of 3.8 years to save for a home deposit for a median priced property in Brisbane, and an average of 4.8 years in Sydney. It is due to this lack of affordability that many young people are either staying at home longer, or asking their parents for assistance in fulfilling their home ownership dreams.

There are a number of ways Baby Boomer parents can assist their children to enter the property market. These include:

Giving their child the deposit
This is often sufficient for the child to obtain finance; they then take responsibility for loan repayments. This method is popular as parents are not part of any contractual agreements.

Acting as Guarantor on a loan
This involves using the parents’ asset as security for all or part of their child’s home loan. It also allows a parent to assist their child without gifting them the money, but involves extensive documentation.

Buying the property together
This involves sharing the cost of the mortgage and property. 

Each strategy has its own advantages and disadvantages, which need to be evaluated carefully. Helping your children might seem like the right thing to do, but it is also important to encourage economic independence and responsibility. Your financial adviser can help you to explore the available options to ensure that you find the solution that best suits your family’s circumstances.

Please note that Trilogy Funds provides general information only and does not take into account any of your personal circumstances or seek to provide a personal recommendation to you. You are encouraged to seek expert advice before acting on any information contained in our resources.