MY MONEY

Half of us do it but you don't have to give your adult kids money

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If you're a parent, you've likely debated whether you should support your adult kids financially (and if so, in what way exactly?). Finder research shows that around 44% of parents with adult children help them out financially, chipping in for everything from groceries to mortgage repayments.

So what's the right solution for you and your children?

Let's take a look at the pros and cons of helping your grown-up kids financially - and some tips to help you do it the right way.

no you don't have to support your kids financially

Benefits to helping your adult kids financially

There are a number of benefits that come with helping your kids out financially, which vary depending on the kind of financial support you're offering. But one of the biggest benefits is simply having added peace of mind that they're okay.

If you allow your adult kids to live at home rent free, which 17% of Aussie parents are already doing, you'll have peace of mind knowing they're living somewhere safe, secure and comfortable.

Finder data shows 23% of Aussie parents are chipping in for groceries for their adult kids, which can bring comfort knowing they're eating well (and regularly!). In fact, helping pay for groceries is the most common way that parents are helping out their adult kids financially.

Another benefit of supporting your adult kids financially, whatever form that may be, is that it can help them buy their own home sooner. Yes, interest rates are at record lows, but property prices are still high, making it difficult to save up a 20% deposit (that is if you want to avoid Lenders Mortgage Insurance). If you're helping them reduce their living expenses by offering free rent, money for bills and groceries or free childcare, then they might be able to save up a deposit sooner.

Some risks and downsides to giving your adult kids financial support

Managing your finances and meeting your various bills and expenses is a life skill that can only be learned by practice. One of the risks with helping your adult kids out financially is they don't develop their own money-management skills. If you're suddenly not around to help them out financially or if your own circumstances change and you're no longer able to, you want to know that they'll be able to manage on their own.

Another risk of giving your kids too much financial support is that your own financial position suffers. If you suddenly become unemployed or have a large unexpected expense, you'll want to have your own emergency savings fund available to rely on. You also want to know that you have enough money to fund your retirement.

Tips for supporting your adult kids financially

One way to help them out while also ensuring they develop necessary financial skills is to make sure they're paying board or rent while they're living at home with you (even if this is a reduced amount). Our data shows that 7% of Aussie parents are doing this, and it's a great way to help out your adult kids while also teaching them how to manage their expenses.

Instead of simply giving them money towards a house deposit, another way to help them get into their own home sooner is to loan them some money. This way, they're able to get their foot on the property ladder and take advantage of low interest rates, but they're still required to put a plan in place to pay the money back to you.

Or, if you don't have cash to loan them for a deposit or this doesn't feel like the right solution for you, you can instead choose to act as guarantor for their home loan.

Lastly, you don't always need to offer money to help out your kids financially. Our data shows that 9% of Aussie parents help out their adult kids by offering their time in the form of free childcare. Similarly, things like picking the kids up from school or cooking weekly meals are ways you can offer support without offering money.

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Alison Banney is a banking and investments expert at Finder.
Comments
ALAN MACDONALD
November 18, 2020 4.48pm

I find it very surprising you so flippantly say ...you can choose to act as guarantor for their home loan without a rider explaining they need to get sound advice! There have been MANY disasters where parents have been on the hook for their kids' loan when things go wrong!!

Stella S
November 18, 2020 4.53pm

It says you CAN. It doesn't say you SHOULD.

ALAN MACDONALD
November 18, 2020 4.59pm

Yes, I realise that, but I still feel any responsible article should also state after that comment what that might entail for them, especially as it says earlier in the paragraph "If you don't have the cash to loan them..." Could be financial suicide for those not wary or knowledgeable enough of financial matters.

Sandra Smith
November 19, 2020 12.12am

I agree entirely Alan. The guarantor line made me cringe. I've read many articles by respected financial gurus who always stipulate getting advise to mitigate possible poor outcomes.

The author should probably also have a disclaimer stating they are not trained in law.

Duncan Urquhart
November 18, 2020 7.43pm

Yes I fully agree with Alan MacDonald. If someone needs a guarantor it means that banks etc don't think they are a good risk. Going guarantor means you will pay it in the event of something going wrong. This could mean losing your own assets or even your own home. This has sadly happened too many times to parents who just wanted to help.

Wan Ng
November 19, 2020 9.32am

When our son and his then-new wife were renting, we helped met the 20% deposit to help them as a loan, saving the payment of annual Mortgage insurance. At that point in time, they suggested for security that one of us have our name in the mortgage (a mistake we later realised but rectified through transfer of ownership to them)! They paid interest-only on the mortgage, not as initially hoped that they would pay off (helped by low interest rate) as quickly as possible as they both had good income. The relationship ended in a divorce, his ex-wife objected to reducing the 50-50 settlement after deducting our loan. Bank statements did not show the full purchase price of the property, only the amount the mortgage was taken out. Lesson learnt. No loan to children; it's hard to resist helping them when we as parents could see them struggling.

ALAN MACDONALD
November 19, 2020 4.42pm

Yes, be very careful in this area. I intend to do similar, but there are official documents you can purchase online (no way they'll let me post a link!) that is a legally-binding loan document. They are $99 and from an actual law firm. This would be proof enough to stand up in court. You can make the terms whatever you like including the interest payments - as much or as little as you like!

Also, be careful of putting your name on the mortgage as if you wish to transfer the loan/property to them later, you could be liable for CGT.

As always, get good advice - BEFORE you do anything, not after :-)

Wan Ng
November 20, 2020 1.48pm

Indeed, wish I knew!

Lin Fox
November 23, 2020 4.13pm

I think Guardians should support their kids when they are growing up. If possible during their first schooling to find their job. After that when they stand on their own feet with all consequences. Without facing the consequences of their activities they won't get the hang of anything. Parents should give a lesson to their children about savings. My family is lives a frugal lifestyle, we can maximum tried to save our money. Whenever we want to buy anything, we always try to get a discount on that thing. And for that we normally use online couponing websites. Guardians must have a sort of self-loving feeling. They are not responsible for the lives of their grown-up youngsters. It can be tough, however, that is my feeling.

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