From secret savings to going guarantor: How parents are helping the kids move out
Some parents are going to extraordinary lengths like modifying family homes and working longer to help kids break into the property market. But there are better ways to move them on | WATCH
On the eve of her wedding day, Jo Main was in tears.
It wasn’t due to pre-wedding jitters. It was a visit to her bedroom from her dad.
“He walked in with this big box and handed it to me,” Main says.
She opened the box and inside was every single board payment she’d made over 13 years.
“Ever since I was 15, he had kept (the board). I opened it and I was so shocked. I started to cry and my mother came in and she got really angry because I was getting married at 10 the next morning. She was putting tea bags on my eyes,” she says.
Main had worked a job at Myer and paid board thinking she’d never see it again.
“It was just the lesson that you needed to pay your way – he never meant to keep that money,” she says.
Instead, her dad was stashing a cash pile to give to his daughter, allowing her to have a better start to married life.
“I remember thinking, wow, we can now afford a washing machine,” Main says.
Main is now considering ways that she can help her two adult children in their 20s get a better start on the next stage of their lives.
They are conversations held by parents all around the country. How do you help your children on their early adult journey? How do you help them secure financial independence without saddling them with entitlement? How do you get them to move out?
Some are working on the gentle “nudge”, while others are embarking on “shove” strategies.
And some parents are going to extraordinary lengths – including working longer themselves – to help their children get into the property market, where the median capital city home price has surged 43 per cent in five years to $873,000.
Money specialists say more children are living at home longer, and it’s having wide impacts.
A 2023 report by the Australian Institute of Family Studies found 43 per cent of 20-24-year-olds were living at home with their parents, up 20 per cent over 15 years, and it was most likely in capital cities.
Meanwhile, the latest Census data shows 20 per cent of children are still living at home in their late 20s, and just under 10 per cent in their early 30s.
Multigenerational living
Financial adviser and author of Money for Life, Helen Baker, says parents tend to be in one of two camps. There are those wanting their children to leave the nest and there are those eager to keep them home for longer.
“They are modifying their homes to enable them to stay – multigenerational living seems to be the new norm,” Baker says. “The other way is yes – you need to get out.
“What I’m now seeing is parents already planning more about how they can give their kids a deposit, with the intention of planning to work longer.
“I think people recognise that unless they’re high-net-worth people, they can’t really buy a home for them, so it’s more about the deposit to try and get them going.”
Some parents consider buying an investment property for the children to rent from them, or jointly investing with them, Baker says.
“One of the biggest issues around (joint investment) is they lose their first-home buyer options, and more and more the government is trying to incentivise first-home buyers,” she says.
Some parents buy their children’s investment property in their own names to retain first-home buyer grants and incentives for their children, while protecting the children from a future relationship break-up if the ex goes for half the house. However, this strategy has potential land tax and capital gains tax issues.
Baker says another option for parents to help is the government’s First Home Super Saver scheme, where $15,000 a year – and $50,000 in total – can be saved in the low-tax superannuation environment and later used for a home deposit.
Other parents use the strategy of Jo Main’s father, charging children board, then refunding it in a surprise lump sum when the children are preparing to move out, she says.
Main, a nurse consultant at Melbourne’s Peter MacCallum Cancer Centre, is discussing with her financial planner ways to assist her own two children aged in their 20s.
She says parents can feel good about helping their children financially, well before any inheritances, and some of her children’s friends have had help getting into the property market.
“They’re not buying houses in the areas they want to live in – they’re buying units quite a way out,” she says.
“In our day when we bought our house, the prices were very different. The interest rate was crazy – I think our first interest rate was 18 per cent in 1990, but the house we bought was only $125,000.”
Set ground rules
JBS Financial Strategists chief executive Jenny Brown says she is seeing more parents grapple with the issues of children living longer at home, and says it is important to help them build savings discipline.
“Make sure the kids are planning and have a budget, so they can get a place of their own,” Brown says.
Adult children should be involved in chores so they know they’re not staying at a luxury hotel.
“It’s making sure there is a clear understanding of what the rules of the game are,” Brown says.
“What are you doing to help contribute to the household?”
Brown also has noticed more parents giving and lending money, or going guarantor for their children’s first home loans.
“You need to be careful going guarantor,” she says. “Is it X amount of dollars within the loan or is it guarantor full stop?
“So many people go into these things and they don’t have a full and accurate understanding.”
Parents can help educate their children, or if they meet resistance perhaps suggest a trusted friend or family member who doesn’t come with the mum or dad tag.
Baker says the rules are changing so often that even professional advisers find it a struggle to keep up.
“Education is key, but action is even more important,” she says.
“We can put our head in the sand and just do nothing out of fear.”
Factor in retirement
Baker says parents want their children to do well, but also have an eye on the changes affecting their own retirements.
“I think the last three years have shown us how something can change significantly, with inflation and the cost of living,” she says.
“There’s always fear of market crashes. We can plan, but it doesn’t always go to plan.
“I think you have to cover yourself off and have contingencies.”
Plan your own finances to overshoot the level of wealth and spending you expect, Baker says.
A few years ago $55,000 of annual income was enough for a comfortable retirement, but today that’s more than $73,000, she says.
“That’s a big jump if you have 20 or 30 years to go. They’re big numbers and they change the parameters significantly. The further you are from leaving the planet, the more risk you have that things are going to change, so you have to overshoot it.”
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