We’ve been studying a trend in residential real estate: how, in the low-odds of a post-recession economy and flat wages, some young people are still managing to buy their first homes.
For five years now, Legal & General has conducted research in the U.K. called the Bank of Mum and Dad (BoMaD), through which we’ve determined that at least a quarter of young homebuyers wouldn’t have been able to afford to buy a home without financial help from their parents, grandparents and loved ones.
Last fall, we decided to look into the Bank of Mom and Dad’s role in the U.S. housing market and whether there were any similarities. Though the market here in the U.S. is far bigger, the findings were similar: the recently released U.S. Bank of Mom and Dad study found that 29% of U.S. parents and grandparents surveyed have provided financial assistance to children and grandchildren purchasing property. But one back-story aspect of BoMaD that deserves notice is how much parents and grandparents are sacrificing, with regard to the quality of their golden years, to help the younger generation get on the housing ladder.
The research found that the Bank of Mom and Dad unambiguously plays a major role in the U.S. housing market: In 2018, over a million American parents and grandparents ponied up $41 billion to help their kids buy a first home. But the generosity and support many people choose to provide younger family members often compromises their own finances, if not quality of life. Older generations that statistically hold more wealth are helping kids and grandkids purchase property throughout the country. But the data indicates that many don’t really have sufficient wealth themselves to do so without impacting their own retirement plans.
How are they doing it? The BoMaD study shows that 54% of “lender” contributions come directly out of their cash savings for retirement. An additional 15% of those we surveyed reported that they took out loans to help their kids. Almost one in six (15%) are accepting a lower standard of living and about the same number believe that they are financially worse off as a result of paying it forward to the degree that they have; 14% also said they feel their financial future is less secure. The study found that the number of BoMaD lenders accepting a lower standard of living was higher among those in the Mid-Atlantic states, with over a quarter of respondents from this region also reporting feeling less financially secure.