High living costs are causing young Australians to lean on their parents for financial support as they work towards improving their own financial situation.
The financial strain of paying adult children’s bills or mortgages makes it hard for some parents to set aside money for emergency funds, retirement, medical needs or future travel.
While some parents are under strain, there are others who concede they will keep financing their children, whether or not it strains their finances, just to ensure they don’t suffer.
Several reasons explain why parents might support adult children:
If you’re planning to support an adult child for any of these reasons, you may wonder how your finances will be affected.
Let’s tackle three pressing questions that parents and guardians have about this situation.
It varies with each family. Some parents feel the burden of financially supporting their adult children, whether they’re capable of providing for themselves or not.
Other parents don’t see their adult children as a burden at all. They feel it’s their duty to support them for as long as possible.
A survey by Finder took a look at “the bank of mum and dad” and found that almost a quarter of Australian families bought groceries for their adult children. Overall, 54% of South Australian parents supported their adult children, followed by Victorian parents at 50%, while only 34% of West Australian parents supported their kids.
The survey of 2,306 Australians revealed that 22% of adult children aged 22–29 lived with their parents and received support without paying for bills or groceries.
“It seems that parents feel responsible for ensuring their kids are on a sound financial footing, no matter how old they are. Thousands of first-time home buyers rely on their parents to get on the property ladder, with mum and dad making deposits and mortgage payments.”
— Graham Cooke, Finder Insights Manager
But even as parents agree to care for their adult children, 18% of participants in the same survey commented they would start charging rent once their child was in a more stable situation.
A much smaller proportion (5%) had a different view and said they wouldn’t expect any rent from their adult children, no matter their situation.
The table below summarises the Finder survey’s results on how parents choose to support their adult children.
Type of support | Percentage of parents |
Groceries | 23% |
Rent | 17% |
Energy and wi-fi bills | 14% |
Grandchild care | 9% |
Transportation | 8% |
Home deposit | 7% |
Tertiary education payment | 6% |
Wedding costs | 4% |
Mortgage payment | 3% |
Source: Finder
Graham Cooke, Finder Insights Manager, reminds parents that their standard of living during retirement may be better than they expect and that they may also lack emergency funds should anything unfortunate occur.
Parents should avoid dipping into emergency funds and retirement savings if they’ve decided to support their children. It’s important to let your children do most of the heavy lifting.
Parents who provide down payments or cash, or use their homes as equity for their children to buy a new home, are under pressure due to reduced cashflow and asset base. Some parents give as much as $250,000 to their adult children to obtain property.
Before deciding to be your child’s mortgage guarantor, research the risks involved should your child fail to pay. Your credit record may be tainted and render you unable to borrow money in the future.
It’s okay to support your adult child financially, but it should be based on the child’s self-motivation to achieve financial independence.
For the self-motivated adult child, your support is a means of helping them sustain themselves as they work, save and invest in kick-starting their self-sufficiency journey.
If they have a need that’s out of their control, such as healthcare costs, and don’t have health insurance, it’s fine to support them before they can afford their own insurance.
However, continuously supporting an adult child who misuses their money will do more harm than good. They won’t learn their lessons and will take too long to become self-reliant.
Another factor that will determine whether you should help your adult child financially is the current state of your own finances.
If you’ve decided to support them, reassess your situation and see how it will affect your finances 5, 10 and 15 years later.
Will you delay your retirement? Downsize your home? Give up travelling or live on the age pension in your old age?
Instead of providing full support, consider aiding your children in reasonable ways, such as:
Some adult children don’t realise that when you give them financial support, such as a loan, you expect to be paid back.
To avoid them giving you a hard time, a family loan agreement will protect you if the relationship with your child turns sour and they refuse to pay. You can download a template here.
If you’re just giving them cash each month for normal expenses, you can write a simple agreement – unlike the formal family loan agreement – on how much you agree to give them for support.
If they misuse their money and demand more, you have no obligation to give them additional funds. Refer them to the agreement you made together.
It’s a good idea to help an adult child who is struggling yet doing their best to be independent. But fuelling the finances of someone who feels entitled to your money may delay them from becoming self-sufficient.
Your adult child needs financial planning skills. You owe it to them to teach them about taxes, investing, savings and cashflow management.
Here are few important financial skills to teach your adult children:
When you teach them about budgeting, which includes saving and investing, they’ll learn how to live within their means.
The 50-20-30 budgeting method is an excellent way to help anyone tame their spending habits. It denotes what percentage of your money should be spent on what.
Here is the breakdown:
A budget will help your adult child create financial stability as they become aware of how to allocate their money each month.
The first thing to do when it comes to managing debt is to determine which debts are straining your finances the most. A debt-to-income ratio of 3 or less is ideal, while anything above 9 is high.
Examples of debt your children might have include personal loan debts, credit card debts and student debts. Encourage your adult child to pay a portion of their debt each month.
They can use the “snowball” method, which involves paying the smallest debt first, or the “avalanche” method, which tackles the highest interest amount first.
Encourage your adult child to start depositing 20% of each paycheck into a savings account where it will earn interest.
Remember to inform them about retirement savings and how they can pay fewer taxes with a retirement plan.
If you’re worried they’re not receiving enough superannuation, speak to Anthony Poole, an excellent financial planner at Poole Advisory, to help your adult child reach their retirement goals. He will also answer any other questions clients have.
“Anthony makes sure all bases are covered. He has enabled us to reach our goals in planning for our retirement aspirations.”
— Rachel K
If you don’t have a solid understanding of taxes, you can set up an appointment for your child with a Poole Advisory financial adviser to teach them.
It’s important that they learn about the responsibility of paying taxes and that they will face the consequences if they don’t adhere to the law.
Poole Advisory lawyers, accountants and mortgage brokers offer financial advising services such as:
These financial advice services will help your adult child make smart, informed choices as they take their first steps toward investing and growing their wealth.
Poole Advisory evaluates your child’s current financial situation and collaborates with you to come up with personalised, meaningful and achievable strategies to help them prosper.
We offer high-value client-centric services relevant to your child, which will simplify their finances while empowering them to make better decisions.
Reach out to Poole Advisory, and we’ll help your adult child take charge of their finances.
This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns
Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917
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