Tips for parents who become the bank of mum and dad
Aussie parents have coughed up more than $26 million to help their adult kids since COVID-19 hit our shores – and one in five is at financial risk from doing so.
Parents helping their adult kids financially isn’t an unfamiliar concept in this country, but figures reveal mums and dads have forked out approximately $26.8 million since the outbreak of COVID-19 in Australiai.
Below we look at what’s going on across the nation and how you can make sure your own wellbeing doesn’t fall by the wayside, particularly if you’re the one in five at financial risk by providing such assistanceii.
What’s happening around Australia?
About 30% of Aussie parents have been providing financial support to their adult kids, as job losses and wage reductions hit many young Aussies hardiii.
According to findings from financial comparison group Mozo, the most popular forms of assistance included help withiv:
- day-to-day expenses, such as utility bills and groceries – 48%
- car expenses – 29%
- purchases for the home – 24%
- medical expenses – 19%
- electronics – 18%.
Meanwhile, the majority of parents didn’t expect to be paid back, despite the fact that one in five was at financial risk by offering such support, with 67% having to take money from their savings to help their adult kids and 37% having to cut back on expensesv.
A survey by another financial comparison group Finder found that 17% of parents were also letting their adult kids live at home rent free, while one in 10 was providing free childcare for their grandchildrenvi.
Have you thought about your retirement?
You might be a number of years away yet, but retirement is worth a thought when considering the costs of your adult children living at home, or out of home and still needing your support.
After all, life expectancy is increasing in Australia, which means you’ll probably need to account for a longer retirement than your parents. If you retire at 60 and live beyond age 85 for instance, you may be looking at funding a retirement that could span more than 25 years.
If you’re wondering how much money you might need, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget needed to fund different retirement lifestyles, based on an assumption people own their home outright and are relatively healthyvii.
September 2020 figures show individuals and couples, around age 65, looking to retire today would need an annual budget of $43,901 and $62,083 respectively to fund a comfortable lifestyle, or $27,987 and $40,440 respectively to live a modest lifestyleviii.
If you’re banking on the government’s Age Pension supporting you, keep in mind to be eligible for a full or part Age Pension you must satisfy an income test and an assets test, as well as other requirementsix.
Ways you could help your kids be financially independent
While many parents provide financial support to their children, providing adult kids with regular cash handouts (particularly if you’re giving them more than may be necessary) could lead to poor financial choices and them living beyond their means because they’ve become too reliant on the bank of mum and dad.
To assist your kids, here are some things to think about.
- Teach them how to budget and save, about the consequences of unsustainable debt and what benefits an emergency fund might have.
- Challenge them to find a better deal with a different (phone, internet or credit card) provider and give them some incentive to do it. These are real life lessons that will hopefully stick.
- Explain how a loan works. Going through your loan statements with your kids is a great opportunity for some financial education. Plus, you can show them how much extra they could end up forking out if they don’t take note of the interest rates they sign up to.
- If your kids are involved in time intensive study and are finding it difficult to commit to part-time work, it’s also an idea to look into government allowances they may be entitled to, noting Coronavirus stimulus payments have also been extended into 2021 if they’re finding it difficult to secure work.
It can be a tricky balancing act, providing financial support for your children while also keeping an eye on your retirement plans and we are here to help.