Supporting adult children while ensuring personal financial stability presents unique challenges. From navigating the complex housing market to exploring various financial aid strategies, the importance of open communication, defined boundaries, and thoughtful estate planning is crucial for preserving both family bonds and future financial wellbeing.
The instinct to assist our children financially often remains strong, even as they reach adulthood. With over half of parents of children older than 18 providing financial support, it’s vital to balance this generosity with your own financial security[i]. Understanding your retirement needs and future expenses is fundamental in determining the level of financial support you can offer without putting your retirement at risk.
In recent years, the financial landscape for first home buyers has become increasingly challenging. They can now borrow 30% less than they could two years ago, making it harder to secure a place in the housing market[ii]. Additionally, property prices have nearly doubled since 2012, leading to significantly higher deposit requirements[iii]. These factors underscore the importance of careful financial planning, both for parents wishing to support their children and for young adults striving to achieve home ownership.
Here are some essential tips to help you maintain your retirement savings, including superannuation, while supporting your children:
Financial support options
When it comes to financially aiding your children, there are several options to consider:
- Gifting funds: Directly giving your children money can be a straightforward way to help, particularly with significant expenses like a home purchase. However, it’s important to be aware of Centrelink gifting rules. As of 2024, you can gift up to $10,000 per financial year, with a cap of $30,000 over five years, without affecting your pension[iv]. Exceeding these limits may impact your pension entitlements.
- Going guarantor: Acting as a guarantor on your child’s mortgage can help them secure a loan by using your assets as security[v]. This arrangement can offer more favourable loan conditions for your child, but it’s essential to fully understand the risks involved, including the potential for having to cover the loan if your child defaults.
- Co-ownership: Jointly purchasing property with your child can be beneficial, allowing for shared financial responsibilities[vi]. However, this requires a clear agreement on each party’s obligations and contributions, ideally with legal documentation to avoid future disputes.
Non-financial support
In addition to financial help, offering non-financial support can significantly impact your children’s financial wellbeing. Sharing financial knowledge and encouraging responsible money management habits, such as budgeting and saving, can empower your children to make informed decisions. Engaging them in discussions about financial planning can offer practical learning experiences.
Communication and boundaries
Effective communication is key when providing financial support. Discuss financial expectations openly and establish clear boundaries regarding the type and extent of support you are willing to provide. This transparency helps prevent misunderstandings and sets realistic expectations for your children, encouraging them to become financially independent.
Planning ahead
Estate planning is a crucial aspect of financial assistance, ensuring your assets are distributed according to your wishes. A valid will is essential, as it dictates how your estate will be managed and who will inherit your assets. Additionally, nominating beneficiaries for your superannuation and life insurance policies ensures that these funds are directed to the intended recipients, as they are not automatically covered by your will.
Regularly reviewing your estate plan is important, especially after significant life changes, such as a new grandchild or changes in marital status. Keeping your estate plan up to date ensures it reflects your current wishes and financial situation.
Helping your children financially is a generous and often necessary part of parenting, but it should not come at the expense of your retirement security. By carefully considering your options, maintaining open communication, and staying informed about financial rules and regulations, you can support your children in a way that benefits your entire family. As always, consulting with a financial adviser can help you create a sustainable plan that aligns with both your and your children’s financial goals.
If you would like more information on how you can help your children without impacting your retirement, or if you require assistance with financial planning strategies, contact our office today.
DISCLAIMER: All information on Focus Wealth Advisers is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider your personal circumstances and seek professional advice before making any decisions based on this information.
[i] Finder (2024) Bank of Mum and Dad statistics 2023
[ii] API Magazine (2024) Affordability crisis hitting first home buyers hardest
[iii] View (2024) Staggering 99% increase: why first-home buyers are struggling more than ever to afford a deposit
[iv] ATO (2024) How much you can gift
