With 700,000 Baby Boomers expecting to retire in the next five years and a $3.5 trillion transfer of wealth on its way, “the bank of mum and dad” is one of the ways wealth is changing hands.
While helping children when they are financially distressed, starting a family or even buying their new home is a non-negotiable parental responsibility for many, some experts have highlighted that both parents and children are often not aware of the long-term impacts this can have.
“I think the big [financial decision parents help with] for all of us is now the cost of getting into a home,” said Kate Kimmorley, principal at Kimmorley Financial Management during an Acenda webinar.
“The impact and the pressure that that’s having on families, and that’s always front of mind.”
As Kimmorley explained, as people live longer and the cost of care increases as a result, being the “bank of mum and dad” might not be the most sustainable option. However, both parents and children are often oblivious to this fact.
“They do not understand what would happen to their house If a child cannot pay their financial commitments [after receiving help], they just think, ‘I’m helping them. I’m helping them save money and getting them in the housing market faster’,” Pedro Marin, managing director of Marin Wealth, stated on the panel.
“If they are physically giving out money, they don’t understand the gifting rules behind, just providing a portion of their wealth into the child’s deposit [has rules they must follow].”
Other things, such as overly simple wills, children overestimating their parents’ wealth and not having conversations about potential future health problems all contribute to many “banks of mum and dad” not being long-term, viable avenues for financial help.
This is where financial advisers step in, with LifePath Financial Planning senior financial adviser Brad Monk explaining how advice can help make sure the money goes where parents want it to.
“Once you give the money, it’s up to the person who receives it on how they spend it. One of the big things which we do is say, well, how about you pay [directly for something important] like the secondary school fees?” Monk said.
This provides a level of security to parents, allowing them to be comfortable in the knowledge that the money they want to give is being used in a way they wish.
