As parents, the instinct to support our children never truly fades, even when they become adults. However, when you’re looking at giving them a financial helping hand, there is a bit to consider.
It’s important to ensure any support you provide is not at the expense of your financial future. It can also be tricky knowing what form your support should take, in order to maximise the benefits for 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, 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’re in good
company.
Achieving balance:
The challenge for most people is the balance between helping your kids get a head start in life and making sure you have enough for a secure financial future.
It’s important to have clear visibility of your own financial situation, of how much you’ll need to fund the retirement you aspire to, and how much you can comfortably spare.
If your financial future is secure, you’ll be in a better position to help your children when they need it most, so ensure that any contribution you make to your kids’ financial wellbeing – isn’t at the expense of your superannuation and other retirement savings.
Ways of providing support:
When we think of support, we often default to the ‘bank of mum and dad’ helping with a home purchase. This is quite common, with 40% of new home buyers getting a helping 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.
See where we can help you:
Clear Sky Financial’s Lending Division is here to help you navigate the complexities of property purchases, refinancing, and securing the best loan options for your needs. Whether you’re supporting your children with a home purchase or managing your own financial commitments, our expert Lending Specialist, Sanna Tammila, can provide personalised guidance and assistance tailored to your unique situation. Book a no-obligation, free Discovery Call with Sanna today to explore your options and ensure that your property and loan decisions align with your long-term financial goals.
Other ways of providing financial support:
There are lot of other ways you can help your kids with a range of expenses. Nearly 40% of parents pay for their adult children’s groceries. 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 forks out for their kid’s car related costs like registration fees and petrol, with the same proportion of parents paying 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, independent financial decisions.
Communication is critical:
Regular, honest conversations about finances can strengthen your relationship with your children. Discuss their financial goals and challenges openly and encourage them to share their aspirations. These dialogues will allow you to gauge how best to support them and sometimes, just being there to listen can make a world of difference.
Setting clear boundaries is also crucial when offering financial support. Discuss how much you can provide, whether it’s a one-off gift, a monthly allowance, or a loan. Be transparent about your limits. This way, you can prevent misunderstandings, help your children set realistic expectations, and cultivate long term goals for achieving their financial independence.
Navigating the complexities of financial support can be challenging, especially when balancing your own needs with those of your children. Clear Sky can provide assistance and advice tailored to your unique situation. We’re here to help you create a sustainable financial plan that allows you to assist your children, without compromising your retirement future.
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
Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.
