Wealth Management

How to help your kids financially without hurting your retirement

Matthew Swieconek
12 April 2023
7 min read

13 April 2023

As parents, we always want to see our children succeed and part of that success is financial stability. However, as they grow, continuing to offer your children monetary assistance may result in increased reliance on the bank of mum and dad, creating a cycle of financial carelessness and dependency. Therefore, you could argue that educating your child on good financial behaviours is more beneficial to them in the long run and it’s certainly worth considering.

Saying that, as you edge closer to retirement, there will invariably come a point in time where only financial assistance will do. But how do you offer your adult children financial help without sacrificing your own financial future? While this may seem unachievable, there are many ways you can do this. In this article, we’ll share different wealth management strategies for supporting your child's financial future while protecting your retirement goals.

Benefits of financial support

Before diving into the potential strategies, it's a good idea to understand the pros and cons of providing financial support to the next generation by weighing the benefits of short- and long-term financial help.

Short-term benefits

  • Reducing financial stress. Many young adults may face financial stress due to student loans, credit card debt, and other expenses. Providing financial support to your children can alleviate some of their immediate financial pressures, allowing them to focus on building their careers or investing in their future.

  • Helping with significant expenses. As young adults, your children may face high costs, such as purchasing a car or making a deposit for a home. Financial support can help them achieve these goals sooner and avoid high-interest loans or credit card debt.

  • Fostering a closer relationship. Providing financial support can be a way to strengthen your relationship with your children. By helping them when they need it most, you can show them that you care about their well-being and their future.

Long-term benefits

  • Building wealth. Facilitating financial support for your children can assist them in building wealth at an early stage, leading to long-term financial success that can significantly benefit their own retirement planning.

  • Teaching financial responsibility. While providing financial support is essential, teaching your child financial responsibility is equally important. Setting boundaries and expectations around how young adults use money can help your children learn crucial financial skills such as budgeting and saving.

  • Maintaining family wealth. Providing financial support to your children can also help maintain family wealth for future generations. Investing in your child's future can help ensure your family's financial legacy continues.

While there are benefits to providing financial support, it's also essential to do so responsibly and without risking your own financial needs. Where possible, employ a ‘show and tell’ approach where you offer financial help but explain why you’re doing it, what the expected outcomes are and share any advice you’d like your family to walk away with.

Parent helping their kid

Potential strategies for providing financial support

There are several ways [1] parents can provide financial support to their children without sacrificing their retirement goals. Here are some examples of the most effective strategies:

  • Saving for a rainy day. Parents can help their children by establishing a rainy-day fund. This fund can provide a safety net for unexpected expenses or emergencies. It can also help teach our children the value of saving and budgeting. While it helps to start this early on, it’s never too late to establish a rainy day fund.

  • Setting up a family trust. A Family Trust effectively provides financial support while retaining asset control. Parents can set up a Family Trust and allocate specific assets or funds for their children's benefit. You can structure Family Trust assets to provide regular payments, lump-sum payments, or set up for particular life events, such as marriage or the birth of a child.

  • Gifting money or assets. Parents can give money or assets to their children as a one-off or regular contribution. Young adults can use gifts for various purposes, such as paying off debt, funding education, or investing in property.

  • Saving in an offset account against a home loan. For parents with a mortgage, an offset account associated with their home loan presents an opportunity to lower the interest paid on their mortgage and save for their children's future.

  • Using investment bonds. Investment bonds are a tax-effective way to invest and accumulate wealth for the future. Parents can set up an investment bond for their children, which can be held in trust until they reach a specific age or life event.

Another great way to help your family financially without hurting your retirement is by teaching family members the importance of ongoing financial advice and pointing them in the direction of a financial adviser. Depending on your financial situation and objectives, you could temporarily offer to pay the ongoing fees yourself or front the initial cost. Whatever you choose, offering this type of support to your children is a practical way of helping them invest in their future while safeguarding your own legacy of wealth.

Considerations for parents

While providing financial support to your children can be noble and generous, it's essential to approach it with care and consideration. According to AMP [2] here are some key insights to keep in mind when providing financial support:

1. Establishing a budget

Before providing financial support, establish a budget that takes into account your retirement goals and financial needs. It will help you determine how much you can realistically afford to provide for your children without jeopardising your financial security.

2. Set up a family trust

Setting up a family trust can be a great way to support your children while protecting your assets. A trust can provide tax advantages and help you to distribute your assets according to your wishes.

3. Diversifying investments

Diversifying your investments can ensure that you have a stable and sustainable source of retirement income while also allowing you to provide financial support to your children. By investing in a variety of assets, you can minimise your risk and maximise your returns.

4. Seeking professional financial advice

When providing financial planning support to your children, seeking professional financial advice is essential. A financial adviser can assist you in devising optimal support strategies that safeguard your retirement goals.

Mother and son together

We can help secure your child's financial future with Findex

As a parent approaching retirement, it is essential to plan carefully when providing financial support to your adult children [3]. There are several strategies to consider, including saving for a rainy day, setting up a trust fund, gifting money or assets, saving in an offset account against a home loan, and using investments. Remember, providing financial support to adult children can have numerous benefits, but careful planning is essential to avoid jeopardising your own financial needs.

At Findex, we can provide personalised advice on wealth management as well as business advisory, corporate finance, tax and general insurance. To match with an adviser most suited to your financial planning needs, submit this form today.

Disclaimer and Disclosure information.

The information contained is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider whether the information is suitable for you and your personal circumstances. Before you make any decisions in relation to a financial product, you should obtain and read the relevant Product Disclosure Statement or information statement. You should seek personal financial advice before acting on any material.

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[1] How to help kids financially without a severe impact on your retirement savings, Australian Financial Review (AFR), January 2018

[2] Tips for parents who became the bank of mum and dad, AMP, December 2020

[3] Helping adult children become financially independent is harder than you think, Sapience Financial, n.d.

Author: Matthew Swieconek | Head of Investment Relations