Are you financially supporting your adult children? While it’s great that you can afford to help in this way – are you really helping them to become financially independent? And what if helping puts your own financial future in jeopardy?
According to Consumer NZ (an organisation focusing on consumer protection and information), parents are providing $22.6 billion in loans to adult children. People getting financial help from their parents or other family members for a home is not a surprise – but the latest figures from Consumer NZ are an eye-opener. Consumer NZ found more than half (61%) of parents helped contribute to their adult children’s house deposit. However, for one in ten parents, helping their kids financially put them under moderate to serious financial strain. And nearly one in four parents had to cut back on expenses to help contribute.
(Read the original news release here: https://www.consumer.org.nz/articles/the-bank-of-mum-and-dad-is-the-fifth-biggest-owner-occupier-lender-in-new-zealand )
Family members may be asked to provide financial assistance, or to become guarantors for a loan – or both. A guarantor is a nominated back-up person when it comes to things like a mortgage, car loan or signing a credit contract. If the person who took out the loan stops paying, then the guarantor has to pay.
It’s complicated, and when such large sums of money are involved it pays to get some professional advice on how to protect yourself, and your family members.
Even if it’s just for smaller sums of money, e.g. paying for groceries, or contributing to school expenses; it all mounts up and over time it can become an expectation that you will keep paying, even if you can no longer afford to do so. So what can you do to manage the situation better?
If the money is to be a loan that is paid back, then getting an agreement in writing is a good idea. If the money is to be a gift, and is not required to be paid back, it still pays to keep a record – especially if other family members aren’t receiving the same support (yes, they do notice!). Updating your Will with any ‘pre-gifting’ is a way to keep the wider family happy that things are being kept fair.
It could be useful to consider if you or your family member needs some budgeting advice. Talking with a Financial Mentor will help you understand the impact on your household budget of providing extra financial assistance. Suggesting your family member also meets with a Financial Mentor could be useful as well. It’s free and confidential, our Financial Mentors are friendly and have lots of experience to offer. Contact our Service Manager on 03 315 3505 to make an appointment to discuss your situation.