Gifting your kids their down payment can create a sense of entitlement.

With home prices heading into the stratosphere, many first-time homebuyers are turning to the bank of Mom and Dad for help. Those are the findings in a survey of the residential mortgage market that was done for the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Although the average down payment made on a first home is unchanged over the last 35 years, at around 21 per cent, more adult children are relying on money from their parents. The number of adult children who relied on a gift from their parents jumped from 2010 to 2014. 11 per cent of first-time homebuyers said their down payment was a gift from family and six per cent said it was a loan.

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Housing Affordability Deteriorating

Despite warnings that Canada’s housing market is overvalued, home prices continue to rise sharply. The average home price in Canada was $419,699 in October 2014, a 7.1 per cent year-over-year increase, according to CREA. Buying a home is even more expensive in Toronto and Vancouver: the average home price in Toronto was $587,505, a  8.9 per cent year-over-year increase, while in Metro Vancouver the average home price reached $637,000, a six per cent year-over-year increase.

While home prices have risen, real wage growth has remained stagnant. The best way to measure housing affordability is to compare average houses prices to average full-time income. In a healthy housing market, average housing prices should rise at the same rate as average full-time income.

Way back in 1997, the average house cost $154,620. With the average Canadian earning $31,484, that’s almost 5 times income. Fast forward to 2013 and we see a different trend; the average price of a home was $379,725. With the average Canadian earning $48,497, that’s nearly 8 times income! That’s quite a jump in only 17 years!

Is Giving Your Kids Money a Wise Decision?

The facts don’t’ lie: housing is less affordable for first-time homebuyers, but is it really a wise decision to give money to your adult children? Paying for everything for your kids can create a sense of entitlement. I learned some very valuable lessons by paying my way through university. I’m almost certain I wouldn’t be where I am today financially if my parents had paid for everything for me.

Many times when I’ve watched HGTV’s Property Virgins, I shake my head in disbelief with how little first-time homebuyers saved towards their down payment. I know everyone’s financial situation is unique, but if you want to own a home you have to be willing to make financial sacrifices. Living the good life in a trendy downtown condo, spending $2,000 a month on rent, is fine as long as you’re able to afford it. Instead of relying on your parents for a down payment, consider renting a basement apartment for a lot less. You’ll be amazed how much money you’ll save. You should be able to save the minimum five per cent down payment in no time!

I know as a parent you have a maternal instinct to want what’s best for your kids, but it’s also important to look out for your own well-being. Many baby boomers are retiring in debt. While your career is winding down, your children still have their peak earnings years ahead of them.

If you’d like to help your kids buy their first home and they’re still living at home paying rent, perhaps you can put some of the money as a gift towards their closing costs. The key is to not let your kids know ahead of time, so they won’t expect it. If you want to go a step further, you can loan your kids the money. If you’re dead set on gifting your kids the money, you should be clear that it’s a one-shot deal. They shouldn’t expect a bailout each time they run into financial distress.

Do you think helping your kids with their down payment is a good idea? What do you prefer: a loan or gift?

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.