With more than 5 million Australians providing financial support to their adult children, it could be time for some “tough love”, a new survey has suggested.
Young Australians may have it tough with a changing labour market, longer study periods and a difficult housing landscape, but caring parents need to ensure they don’t provide a safety net out of their own retirement savings, finder.com.au money expert Bessie Hassan has said.
Pointing to a new finder survey revealing 61 per cent of Australian parents support their adult children financially, Ms Hassan said parents need to ensure they don’t keep the training wheels on for too long.
“It can’t always be mum and dad to the rescue,” she said.
“Giving too much support can make it harder for young adults to understand the true value of money, and how to manage financial adversity when things don’t go to plan.”
According to the survey, the most popular form of financial support was giving cash (29 per cent), followed by help with groceries (19 per cent), granting loans for a home or car deposit (16 per cent) and allowing them to live rent free (16 per cent).
“Millennials often get a bad rap for being lazy, but remember young Australians are studying for longer these days, which may delay their entry into the workforce,” Ms Hassan said.
Nevertheless, parents need to recognise that prolonged support can diminish retirement savings.
“Giving your kids some tough love will also ensure you have enough stashed away to enjoy your twilight years,” she said.
“But if your child needs financial support or is living at home due to study commitments, set up a mutually beneficial agreement.”
She suggested parents ask their children to pay board. This has a dual benefit; parents are able to save some more money each week and children develop savings habits.
Additionally, paying your children’s phone bills is a bad idea. It’s important for children to understand the cost of items and become financially fit, she explained.
Setting a budget is another way to teach financial responsibility, and the savings put aside can be put aside for a deposit down the track.
“Whether it’s getting them to help with household chores or contributing to the grocery bill, there are many ways you can teach them good financial habits while continuing to support them,” Ms Hassan said.
The ‘bank of mum and dad’ is a multinational corporation
Mums and dads in ol’ blighty are experiencing the same phenomenon, a report from UK financial services company Legal & General has revealed.
According to Legal & General, nearly one in five over 55-year-olds are “feeling the pinch” after helping their kids enter the property market and have reduced their quality of life to do so.
“It's not Baby Boomers who have made house prices unaffordable for 'generation rent'; it's an acute housing shortage, with a shortfall of over 100,000 homes a year. Unsurprisingly then, we think the key to unlocking homeownership for the next generation is to build more,” the report’s authors contended.
“Another reason why the bank of mum and dad isn't going to fix the housing crisis is that it isn't sustainable. Many older people have worked hard, saved hard and benefited from rising property prices, but their wealth is still limited. There are no government bailouts for the bank of mum and dad.”
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