National Post – August 13, 2005

Section: Financial Post: Weekend
 
Not many people in their 20s could pop out of the office for lunch and come back sporting a new TAG Heuer watch along with their takeout. Mike Yao has. And after work, he drives a Lexus 300, a racy yellow luxury ride that looks fast just sitting at the curb.

Mr. Yao's secret isn't the size of his paycheque. Though he works at a large brokerage in Toronto, he slogs away in the client-services department, not the big-money trading floor.

No, the key to his extra-large spending power is the fact that he lived at home with his parents well into his working years.

"I could go out for dinner three nights a week, splurge on vacations," he says. "I could pretty much just buy anything I wanted without thinking."

Mr. Yao, who finally moved out at 28, is emblematic of the growing number of young adults enjoying the financial fruits of remaining in the parental nest. The 2001 census showed 41% of the 3.8 million Canadians aged 20 to 29 lived with their parents in 2001, up from 27% in 1981. Young men are the slowest to pick up and go, with 29% of men between the ages of 25 and 29 still hanging their hats in mom and dad's closet.

And not just burger flippers are returning home. In light of rising education costs, real estate prices and residential rents, everyone from bond analysts to pharmacists is staying home.

Perhaps they start out with the goal of skipping the rental stage, and socking away their paycheques so they can go straight to home ownership. Problem is, that plan can fall apart because the rent-free lifestyle makes it easy to blow all that cash flow on shiny things.

Simply hanging out at mom and dad's place won't help you pass GO faster; to make the stay-at-home-and-save strategy work, you've got to employ discipline and, yes, develop a financial plan.

"While people live in their parents' home with all these great goals of saving for a house or an apartment, they start looking at that money they should be saving as funny money and they end up buying a lot of luxury goods," says Elina Furman, author of Boomerang Nation: How to Survive Living With Your Parents ... the Second Time Around (Fireside) which hit bookstores in May. "I'd say [only] 70% reach their financial goals."

If you manage to avoid "outlandish purchases," living at home can be a great way to get your finances in order, Ms. Furman says. The big risk, however, is that staying too long can stunt your financial growth.

The New York-based author, who moved home after university and lived with her mother throughout her 20s, says waiting too long to move out saps fiscal independence and fosters timidity.

"I regret having done it for so long," she says. "It contributed to my not being able to take risks in other areas of my life."

Financially, she was the opposite of the profligate spenders, but says that attitude was unhealthy too. She felt she should save every penny and spent nothing on herself, putting off a dream of a vacation while cranking out books.

It wasn't until she finally moved out that she took three weeks off and went to Italy, which "was a great experience," she says.

While living at home, Ms. Furman also found that her personal life suffered, a complaint of many live-at-home adults. Besides the difficulty of explaining to your date that you live with mom at 28, there's a nagging feeling that you should spend your spare time with your family, she says.

To get out before the parental home becomes such a "morass of togetherness," young adults need to have a firm deadline and a financial goal, such as saving enough for a down payment in four years, she says.

The money for the moving-out fund should go to investments that are guaranteed, she says, suggesting bank certificates of deposit. Stocks are a bad idea because they are volatile, and when the money is needed for a down payment, the price could drop --leaving the would-be homeowner holed up with mom and dad for another year.

And although the main reason for living at home is to save money, Ms. Furman says paying rent to your parents is an important key to your future financial success. While some parents may be reluctant to take money from their kids, being in the habit of paying for accommodation will ease your transition into the real world.

Parents who don't feel right making money off their kids can set the funds aside or invest them with an eye to returning the proceeds when their child finally does move out, she suggests.

For parents who would like to help but don't want junior living in his old room, buying another place on his or her behalf is an option. The Canada Mortgage & Housing Corp. now allows parents to buy a second home for a relative with no money down and still insure the mortgage, says Jackie Woodward, a mortgage agent with Invis in Edmonton. She says she's arranged mortgages for three clients purchasing homes for grown kids.

Mortgage-insurance premiums work the same way as with a first home: on a sliding scale, with smaller down payments requiring higher outlays for coverage. Assuming you're the one buying the home, your relative isn't supposed to pay rent under the CMHC program. (However, the government rarely checks.)

To charge rent above board, you have to put down at least 15%. CMHC doesn't release statistics on how many people use the programs, citing competitive reasons.

However, Toronto real estate agent Brad Lamb says he sees "lots of activity" from parents buying a place for their offspring. He doesn't recommend the no-money-down approach, because "buying real estate with no money is a terrible idea" and unnecessary for many parents, who are affluent now thanks to the same rising property values that keep their kids in the basement.

"[First-time purchasers] seem to be 35 these days," Mr. Lamb says. "They live with their parents until their late 20s, and then if they can the parents give them a little shot of equity to get them out of the house."

Mr. Yao, who's now living in a Toronto condo that his parents own, says the arrangement is working out fine. He pays a discounted rent -- he reckons it's about 80% of the going rate --and finds that's helping him to be more disciplined about his finances.

"I'm more conscious now of what I buy and what I spend," he says.

For Ms. Woodward, one of the success stories was a client who had been in bankruptcy. His father was subsidizing his living expenses and eventually said: "That's stupid. Why don't we just buy something and you make the payments?" she explains.

Six years later, the man has rescued his credit and is now looking at a mortgage of his own. Thanks, dad.

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