Canadian parents are finding a way to get the adult children out of their homes — they’re willing to help adult kids with a down payment for their first homes. According to a new report from the Bank of Montreal: “On average, one third of first timers (30 per cent) expects parents or family to assist in their purchase. However, this percentage rises to 40 per cent in Montreal and Vancouver.”

Sal Guatieri, Senior Economist for BMO Capital Markets said, “High prices in a few major cities, and the fact that prices are outrunning incomes in Toronto, are turning off some first-time buyers, while forcing others to go deeper into debt, tap their parents for hefty down payments, and opt for a condo rather than a detached house.”

For context, the average first home in Canada costs $316,100. That means even a 5% down payment is almost $16,000 – a tough amount for a young person to save. So, would you help your adult kids with a down payment?

Would you help your kids with a down payment on a home?

I’m often asked what’s the #1 most important thing parents need to do when figuring out and planning how to deal with the financial costs of adult children living at home. Here’s my answer:

The most important thing parents can do when planning for adult children to move home is sit down and work out a family budget that documents their living expenses. Then, make a best-guess estimate about how those expenses will be impacted by the adult child’s move back home. Expenses like food, electricity, gas, and insurance will likely all increase. Share this information with the adult child so that they understand their financial impact on the household — many adult children are under the mistaken impression that their stay at home is “free” for everyone. Talk about how the adult child can contribute to the additional expenses.

I recommend all adult children living at home pay some rent, partly to offset the
additional expenses, but also to maintain the routine of having a monthly financial responsibility and  to help maintain their self-esteem as a contributing member of the household. If they have no income at all, they can earn their rent by contributing manual labor around the house, especially to tasks the parents would otherwise have paid for, like washing the car, painting the garage, and so on.

And one key thing: Parents should never put their own financial well-being in jeopardy to support an adult child. Adult children have many more earning years ahead of them than their parents, who may be struggling to save for retirement.

Reuters has published an excellent article with tips on how to claim your adult children on your taxes if they are your dependents. They advise that determining whether your adult children qualify as dependents can be like “threading a needle in dim light.” But each dependent can cut your taxable income by $3,700 or more. Essentially, if you are paying 50% or more of your adult child’s expenses, it is worth reading the Reuters article to get the details, even if you adult child is not living at home. You can find the Reuters article here: Tax tips for the sandwich generation