Ask Paul: Can I use my teen's $30k for mortgage and pay her interest?

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Dear Paul,

My 19-year-old daughter is living at home and studying at university.

Over the past few years she has managed to save around $30,000.

paul clitheroe

With term deposits being so low (around 1.85%), should I put her money against my mortgage and pay her just over 3% (the mortgage rate) a year?

I can redraw the money if and when required. What are your thoughts? - Greg

Your daughter has done really well, Greg - saving while at uni is not easy. I recall my part-time job earnings back then being converted into beer!

In principle, I do like the family use of debts and assets, but there is a caveat, which is that any "in the family" arrangements should be well understood and clearly documented.

I am really at a bit of a loss as what else to suggest to a 19-year-old. It is too early to consider property - she will not be likely to have the cash flow or want the millstone of a mortgage at this stage.

Shares are fine, but I really think that needs to be a minimum seven-year decision. Given I think young people need flexibility, I suspect your plan is about the best for now.

This money may be needed for travel, a future deposit or a business start-up. So for now I think the best return she can get, with liquidity, is the way to go.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the television show Money, radio, and most notably this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is Chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.