Helping the kids without derailing your retirement plans
- Wallis-Smith Financial Planning
- Jul 17
- 3 min read
Updated: Aug 21
As parents, the instinct to support our children never truly fades, even when they become adults. However, when considering giving them a financial helping hand, there are several factors to consider. It’s crucial to ensure that any support you provide does not jeopardise your financial future. Additionally, it can be challenging to determine the best form of support to maximise benefits for your kids.
Navigating a Challenging Financial Landscape
In today’s financial environment, many young people face significant hurdles. Skyrocketing housing prices and rising living costs make it increasingly common for parents to offer financial assistance. In fact, more than half of parents with children over 18 provide some form of support. If you are considering helping your adult kids financially, you are certainly not alone.
Striking a Balance
Finding the right balance between helping your children and securing your financial future can be tricky. It's essential to have a clear understanding of your financial situation. Know 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 better positioned to assist your children when they need it most. Always ensure that any contributions you make to your kids' financial wellbeing do not come at the expense of your superannuation and other retirement savings.
Ways to Provide Financial Support
When we think of support, we often envision the ‘bank of mum and dad’ helping with home purchases. This is quite common, with 40% of new home buyers receiving assistance from their parents. 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 or Centrelink implications.
Going Guarantor: Another popular option is to act as a guarantor on your child’s home loan. This means using 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 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 outlining each party’s responsibilities and financial contributions. Again, consider Centrelink and taxation implications.
Other Ways to Provide Support
There are many other ways you can assist your children with various expenses. Nearly 40% of parents pay for their adult children's groceries. Around the same proportion allows their adult children to live at home rent-free. Additionally, about a third pay their adult children's bills. One in five parents covers car-related costs like registration fees and petrol, while 20% help fund their kids' holidays.
The Value of Non-Financial Support
Financial assistance isn’t the only way to support your children. Your time and knowledge can be just as valuable. Encourage them to develop good financial habits, such as budgeting, saving, and investing. Consider involving them in family discussions about money management, which can empower them to make informed financial decisions.
The Importance of Communication
Regular and honest conversations about finances can strengthen your relationship with your children. Discuss their financial goals and challenges openly. Encourage them to share their aspirations. These dialogues will help you gauge how best to support them. 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. By being transparent about your limits, you can prevent misunderstandings. This approach helps your children set realistic expectations and encourages them to become financially independent.
Creating a Sustainable Plan
Navigating the complexities of financial support can be challenging, especially when balancing your own needs with those of your children. I can provide assistance and advice tailored to your unique situation. Together, we can create a sustainable plan that allows you to assist your children without compromising your retirement goals.
In conclusion, supporting your adult children financially requires careful consideration and planning. By understanding your financial situation, exploring various support options, and maintaining open communication, you can help your children while ensuring your own financial security. Remember, it’s about striking the right balance.
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Disclaimer: This information is general advice. We have not considered your objectives, personal or financial circumstances. You should consider the appropriateness of the advice for your circumstances before making any decision.
