As parents, the instinct to support our children never truly fades, even as they become adults. However, when considering giving them a financial helping hand, there’s a lot to weigh. It’s essential to ensure that any support provided doesn’t come at the expense of your own financial future, and it can be challenging to decide the best form that support should take.
“Helping your children financially is a wonderful goal, but it’s important to do so in a way that won’t jeopardise your retirement plans,” says Daniel Grusd, Director & Senior Financial Adviser at Onelife Financial. “Achieving a balance allows you to secure your future while still offering meaningful support to your kids.”
Support in a challenging environment
In today’s financial landscape, many young people are struggling to get ahead in the face of skyrocketing housing prices and rising living costs and it’s increasingly common for parents to provide some form of financial assistance. In fact, more than half of parents with a child older than 18 provide financial support.i
So, if you are giving your adult kids a monetary helping hand, or considering it, you are in good company.
Achieving balance
The key challenge lies in balancing the desire to help your kids with the need to ensure your own financial security. Having a clear understanding of your own financial situation and retirement needs will allow you to gauge how much you can comfortably contribute. By safeguarding your own financial future, you’ll be in a better position to provide support without risking your retirement savings.
“One of the most valuable steps parents can take is to have an open discussion with a financial adviser,” says Daniel. “This helps you map out your retirement needs and identify safe ways to assist your children, ensuring that your support doesn’t compromise your financial independence.”
Ways of providing support
When we think of support we often think of the ‘bank of mum and dad’ helping with a home purchase and that is quite common, with 40 per cent of new home buyers getting a hand from their parents. ii
If you’re considering this route, you have several options:
Gift funds: If you have the means, you can gift your child a portion of the deposit; however, be mindful of any tax implications.
Going guarantor: Another popular option is to act as a guarantor on your child’s home loan. This means that you’ll use the equity in your own home to guarantee the loan, which can help your child secure better borrowing terms. It’s a significant commitment, so be sure to discuss the potential risks and implications thoroughly.
Co-ownership: In some cases, parents and children can purchase a property together, sharing the financial responsibilities. This arrangement can be beneficial, but it’s crucial to have a clear agreement in place outlining each party’s responsibilities and financial contributions.
Other ways of providing financial support
There are lot of other ways you can help your kids with a range of expenses. Nearly 40 per cent of parents pay for their adult children’s groceries and around the same proportion allow their adult children to live at home rent-free, while around a third pay their adult children’s bills. One in five fork out for their kid’s car-related costs like registration fees and petrol and 20 per cent pay for their kids to take off on holidays.iii
Non-financial support
Financial assistance isn’t the only way to support your children. Often, your time and knowledge can be just as valuable. Encourage them to develop good financial habits, such as budgeting, saving, and investing. You might even consider involving them in family discussions about money management, which can empower them to make informed financial decisions.
Communication is critical
Open conversations about finances strengthen relationships and help set clear boundaries. Regularly discussing financial goals and challenges fosters understanding and prepares your children to make informed decisions.
Navigating the complexities of providing support while securing your future can be challenging. Speaking with the Onelife Financial team can help you create a tailored, sustainable plan that allows you to assist your children without compromising your own retirement goals. Book a chat to discuss your situation here.
i Finder Bank of Mum and Dad Report | Finder
ii https://www.apimagazine.com.au/news/tag/deposit
iii Bank of Mum and Dad slightly less generous than before COVID-19 crisis, survey shows | Domain
