As parents, the instinct to support our children never fades, even as they become adults. But when it comes to offering them a financial helping hand there are a few important things to consider.
You want to make sure the support you provide doesn’t come at the expense of your own financial future. Finding the best way to help can be tricky, but choosing the right approach make a big difference in how it benefits your kids.
Support in a challenging environment
In today’s financial landscape, many young people are struggling to get ahead in the face of increasing house prices and rising living costs. It’s becoming 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.
So, if you are giving your adult kids a monetary helping hand, or considering it, you are in good company.
Achieving balance
The challenge for most parents is finding the balance between giving your kids a head start in life and making sure your financial future stays secure.
To do this, it’s crucial to have a clear picture of where you stand financially – how much you’ll need to for the retirement you dream of, and how much you can comfortably offer your kids without stretching yourself too thin. When your financial future is secure, you’ll be in a better position to help your children when they need it most. So ensuring that any contribution you make to your kids’ financial wellbeing is not at the expense of your superannuation and other retirement savings will be at your best interest
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.
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 common 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 big commitment, so it’s essential to have an open, honest conversation about 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 cover their kid’s car-related costs like registration fees and petrol and 20 per cent pay for their kids to take off on holidays.
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
Having regular, honest conversations about money can strengthen your relationship with your children. Talk openly about their financial goals and challenges, and encourage them to share their aspirations with you. These conversations give you a chance to understand how best to support them and sometimes, just being there to listen can make all the 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 and help your children set realistic expectations and become financially independent.
Next steps
Navigating the complexities of financial support can be challenging, especially when balancing your own needs with those of your children. Our specialists can provide assistance and advice tailored to your unique situation, to help you create a sustainable plan that allows you to assist your children without compromising your retirement goals.
Connect with a Nexia adviser today to start these conversations.
