There is no bigger bank of mum and dad when it comes to doctors. This is because most doctors have high incomes, and this usually means the family is used to a certain lifestyle. And that usually means children are used to a certain lifestyle from a young age. That means when the children of doctors want to buy a home, it has to meet a ‘certain standard.’
We are all told that our kids will come to us with begging bowls in the hope that the bank of Mum and Dad will bail them out for a house deposit. In the case of doctors, I usually find that my doctors’ clients are prepared to give significant amounts to their children because their children do not have the ability to purchase a home that is considered adequate.
Many will tell you this has all got to do with the consumption of avocado and toast at your local café. But I am not so sure. You would have to consume a crap load of avocado and bake a crapload of bread before you go through an entire house deposit.
No. This is because the rate of house price rises and wage inflation are not exactly what you would call synced. This means house prices are like a runaway express train, and wage rises are like a tortoise.
Don’t get me wrong. Wage rises are good, but compared to house prices, they are crap. And this then means that banks want larger deposits before they lend, and this then forces kids to knock on the doors of parents.
As parents, we are deemed so mean that we are compared to Ebenezer Scrooge if we do not bow to them and give them all our hard-earned savings. And because the children of doctors know that their parents have deep pockets, they might as well dig in and get whatever they can.
I know I show my age when I discuss what things were like in my day, but the concept or vision of going to my mum and asking for a deposit to buy a home was laughable.
But I look at house prices and think we live in an insane world. And I bet you do, too. So much so that despite my setting up my kids for the financial future, I think it is only a matter of time before both my kids come to me with a begging bowl.
At the time, I hope I do not listen to my wife, who is as sentimental as any mother, and I hope I do not listen to whatever is left of my heart, either. I hope and pray to the almighty that I listen only to my brain and do what I tell all my clients to do when they ask me for advice when it comes to giving kids their money.
Why do I say this? Well, because when it comes to our kids, we become all gooey like a warm chocolate dessert. Logic goes out of the window, and we become governed by our hearts when what is needed is, well, logic.
That is because I am finding that all those parents who were warm and gooey have worked out that warm and gooey does not work for them and now need to move to something stiffer – like a shot of stiff whisky. Or maybe a bottle of whisky.
This is not because their children have become nasty, run away with money, or even refused to pay it back. In many cases, it’s not your kid who will be the problem—it’s their partners.
And because of this, many lawyers become involved. And when that happens, you need not just a bottle of whisky. It’s going to be an entire case. Followed by a suitcase load of cash, which you will ‘donate’ to the lawyers.
You see, when kids come to their doctor parents with a begging bowl and ask for money, parents tend to give it. I have noticed that medical professionals rarely discuss if this is a gift or a loan. And there is almost no chance that any of it is put on paper.
Generally, I will always tell a medical professional client that if their child asks for money, then they should document it as a loan even if they have no intention of asking for it back.
The problem is that many will not follow the advice. It has something to do with becoming a warm, gooey chocolate dessert.
And the reason I say this is because once money is given without paperwork, it is hard to get back. If you want it back, you have to go to court (hence the many lawyers), and it is likely that in court, it will be deemed a gift. If it is deemed a gift, there is a chance you may have donated the money not to your child but to someone you may not actually like anymore.
I know what you are thinking. When would that happen?
Well, picture this.
Your son is a lovely human being and decides to marry an equally lovely girl. They are so lovely that you are 100% in favour of their marriage. Soon after, they come to you for a loan to purchase a house. And because they are so lovely, you give them $150,000.
A few years pass, and 2 equally lovely grandchildren are born.
Unknown to you, the couple started having problems and now decided to divorce.
You now decide that you would like to have your $150,000 back. But your ‘now not so loverly daughter in law’ argues it was a gift, and you try to argue it was a loan. And your son backs you up on this, too.
And so, in court, the judge will ask the logical. If it was a loan, where is the loan documentation? Are there any emails to suggest it was a loan? Has interest been paid?
Because without this, the judge will conclude it was a gift, and gifts cannot be claimed back. And this ultimately means you have probably gifted you’re not so lovely soon to be ex daughter in law a minimum of 60% as she also has custody and needs to look after the kids. It is entirely possible that your ex-daughter-in-law gets the house, and your son ends up living with you again (this is exactly what happened to one of my clients, so do not think it will not happen) with you being $150,000 poorer.
But this does not only apply to giving money to purchase a home. We often see it in succession plans where parents are thinking of passing down their business. If shares in the business, say a medical centre, are gifted to the child who subsequently splits from their partner, the medical practice ownership could be split, too.
My prediction is that with more and more kids coming to their parents for a handout, more and more parents will get caught out. And because medical professionals will generally give more money than other parents (because they have the financial ability), medical professionals are going to get hit hard. If you don’t want to get caught out, cancel the gooey chocolate dessert and order the bottle of whisky instead.
Maintaining and keeping your wealth is step 1 and 9 of our 9 steps to working less, earning more and building wealth. If you would like to know more, contact Hitesh at hitesh@medisuccess.com.au or call 07 3172 0819.
