Saturday, December 12, 2009
Buying a house and intergenerational wealth transfer
I think one overlooked aspect of the rent v. buy debate is that buying facilitates an inter-generational wealth transfer (from parents to offspring), while renting typically does not. Due to the widespread belief that buying a house gives you shelter and a secure investment future (you can't live in a share of stock), it can be relatively easy to ask parents and grandparents to chip in 25 grand, or however much, in order to buy a first home. It would be harder to say, "Mom, Dad, my wife and I have decided that it makes more financial sense to continue renting, but we would like you to give us $25,000 to buy some stocks." The latter plan, sensible though it may be in many cases, isn't as emotionally rewarding to parents, nor is there much broad cultural support for such a wealth transfer, as far as I know (hard to say, though; intra-familial financial transactions are usually closely guarded secrets--is there any economics literature on these family dynamics?).