Help Your Kids

Over the last 10 years, the term, the "Bank of Mum and Dad" (BoMaD) has becoming increasingly common. Amongst our clients, it is no different, with our Sydney and Melbourne clients concerned about their children’s ability to buy a property.

From our client’s experiences, here’s some financial planning advice that has worked:

Assess Your Financial Situation

• Budget Review: Ensure you have a clear understanding of your own financial health, including income, expenses, savings, and investments.
  
  
• Emergency Fund: Maintain an adequate emergency fund (usually 3-6 months of living expenses) before committing funds to support others.

Define Your Goals and Limits

• Set Limits: Determine how much you can afford to give or lend without impacting your financial stability.
  
  
• Purpose and Terms: Clearly define the purpose of the support (e.g., a home deposit, education) and whether it will be a gift or a loan.

Communicate Clearly

• Discuss Expectations: Have open discussions with your children about their needs and your capacity to help. Clear communication helps prevent misunderstandings.
  
  
• Written Agreements: For loans, consider formalizing the terms in writing, including repayment schedules and interest rates, to avoid potential conflicts. What is the impact on borrowing from a bank.

Consider the Tax Implications

• Gifts: Be aware of gift limits and implications.
  
  
• Loans: If providing a loan, understand the potential tax implications of interest payments and documentation.

Plan for Your Future

• Retirement Savings: Prioritize your own retirement savings to ensure that you’re financially secure in your later years.
  
  
• Healthcare Costs: Consider potential future healthcare costs and plan accordingly.

Explore Financial Products

• Family Trusts: For significant amounts, a family trust might be a useful tool to manage and distribute assets.
  
  
• Joint Investments: Explore investment options that can benefit both you and your children, such as joint accounts or investment bonds.

Seek Professional Advice

• Accountant: Consult an accountant to revie and confirm tax implications for all parties.
  
  
• Legal Advice: Get legal advice for drafting agreements or setting up trusts to ensure all legal aspects are properly handled.

Review and Adjust

• Regular Check-ins: Periodically review your financial plan and adjust as necessary based on changes in your financial situation or your children’s needs.
  
  
• Flexibility: Be prepared to adapt your support strategy as circumstances change, whether due to market conditions or personal situations.

Educate Your Children

• Financial Literacy: Encourage and support financial education for your children to help them make informed decisions and manage their finances responsibly.

Plan for Inheritance

• Estate Planning: Consider how your support fits into your overall estate planning to ensure that your assets are distributed according to your wishes.

Supporting family can be rewarding but requires careful planning to balance generosity with financial stability.