Why parents must set limits for gifting their kids, even in significant financial endeavours.
As parents, it’s only natural to want the best for our children and provide them with financial support when they need it. However, there comes a point where generosity can become excessive, especially when it comes to gifting large sums of money to adult children, such as helping them buy a house.
In this blog post, we’ll explore:
- Finder’s Parenting Report 2023
- More parents are willing to gifting their kids
- Why parents must set limits for gifting their kids
Finder’s Parenting Report 2023
One case underlining the need for parents to temper financial assistance to children for buying a house recently emerged in Finder’s Parenting Report 2023. The study polled 1,033 Australian parents of children under 12 years old.
Many parents were willing to provide their children with as much as $33,278 on average as a gift to help them buy a new home. When broken down by state or territory, parents in Victoria were willing to shell out $52,716 while on the far end, WA parents could give $32,076 at most.
As much as 51 percent of all respondents admitted they might only give no more than $1,000. Current data also points to average first home buyer loans in Australia as of March 2023 at $481,368 with the buyer deposit at $96,274.
More parents are willing to gifting their kids
Parents often want to ensure their children’s financial well-being and offer them a head start in life under the Bank of Mum and Dad (BOMD). By providing financial assistance, parents hope to alleviate their children’s financial burdens and help them achieve their goals.
Family bonds are important, and financial support can be seen as a way to strengthen and maintain those connections. Parents may view assisting their adult children as a way to foster a sense of unity and solidarity within the family.
Some parents see gifting money as a way to pass on their wealth to the next generation. By providing financial resources, parents aim to help their children establish a secure financial foundation and potentially create a legacy of wealth within the family.
Why parents must set limits for gifting their kids
Over-reliance on parental financial support can hinder adult children from developing financial independence and self-sufficiency. It is essential for young adults to learn financial responsibility, make independent decisions, and experience the natural consequences of their choices.
Regarding the Finder report, there’s expressed concern that while parents might still deliver to help children settle in, the current property prices might later affect their own retirement funds if things went sour.
Facing financial challenges and working towards goals can foster personal growth and resilience. By setting limits on financial assistance, parents encourage their children to develop problem-solving skills, resourcefulness, and the ability to overcome obstacles on their own.
Parents have their own financial goals, such as retirement planning and maintaining their own financial security. Overextending financial support to adult children can jeopardise parents’ financial well-being and compromise their own future needs.
Part of that financial prioritisation may have run into snags as early as childhood. The Finder report estimated that 35 percent of respondent parents were forced to tap into their children’s savings for various purposes, such as paying off their debts or to cover current expenses. Another 17 percent admitted that to save on education costs, parents had to transfer their kids into the public school system.
Excessive financial support can strain parent-child relationships. It may create a sense of entitlement, dependency, or even resentment. Setting limits on financial assistance helps establish healthy boundaries and preserves the integrity of the parent-child relationship.
Setting financial assistance limits
While providing financial support to adult children is well-intentioned, setting limits is crucial for their long-term financial well-being and the preservation of family dynamics.
- Open communication. Have honest and open conversations with your adult children about your financial capabilities and expectations. Discuss the importance of financial independence and the need for them to take responsibility for their own financial well-being.
- Define boundaries. Establish clear boundaries on what you are willing and able to provide. This can include specifying the types of expenses you are comfortable supporting and setting limits on the amount of financial assistance given.
- Encourage financial responsibility. Emphasise the importance of budgeting, saving, and managing money effectively. Encourage your children to develop their financial skills and make informed financial decisions.
- Explore alternatives. Instead of providing large sums of money outright, consider alternative options that encourage financial independence. For example, offer guidance on saving for a down payment or co-signing a mortgage, rather than providing the entire home deposit.
- Offer non-financial support. Instead of solely relying on financial assistance, consider providing non-financial support, such as advice, mentorship, or helping your children build their networks. Non-financial support can be just as valuable in helping them navigate their financial journey.
By encouraging financial independence, personal growth, and maintaining a healthy balance between parental support and self-sufficiency, parents can ensure their children develop the skills and resilience necessary to thrive financially.
The ASAG Reverse Mortgage
The ASAG Reverse Mortgage enables customers to serve as a financial resource for their family, just like the Bank of Mum and Dad, during critical times. Many parents wish to provide financial support to their loved ones for educational expenses, a down payment on a home, or a mortgage. With our reverse mortgage, they can accomplish this without tapping into their long-term retirement savings or superannuation.
The ASAG team is happy to assist with further details about how our equity release solution works. You are welcome to contact us at 1300 002 724 or via email at email@example.com to make enquiries regarding our reverse mortgage.
Additionally, you can use the tool provided below to evaluate your accessible equity and start the process.
DISCLAIMER: This article is for informational purposes only and is not meant to replace official financial advice. The Australian Seniors Advisory Group has no relationships with any company mentioned in the article.