It's every parent's dream to see their children succeed in life and sometimes that means helping them along the way. But how much help should children get? They need enough to give them a good start, but not so much that they become dependent on parents to get by.
Financial planner, Liz Koh says people with adult children will tell you that children are a lifetime financial commitment. That's because life never goes smoothly, and every now and then, for a variety of reasons, parents get called upon for a bit of help.
NOTE RE IMPLICATIONS OF GIFTING AFFECTING RESIDENTIAL CARE THRESHOLDS: Not discussed during the interview here, but of importance to parents who may be considering financial gifting to their children, are the implications for those living at, or considering moving to, residential care. Residential care residents, or those moving into residential care within the next five years, are affected by residential care subsidy thresholds. The gifting rules allow gifts of $6,500 per couple, per year, in the five years before going into care, and $27,000 per applicant per year outside that. Source: Residential Care and Disability Support Services Act 2018 and accompanying regulations.
“I think every parent really wants to help their children, we want to see them succeed, get ahead, we feel an obligation as part of our parental duty to help our children but where do you draw the line? That’s the key thing.”
Children are great at playing the guilt card, she says. “They can be quite manipulative sometimes.”
Parents quite often help out their children who are at university and relationship breakdowns are another key reason.
“Of course, the main one at the moment is housing and I think that’s something that a lot of people have been putting some thought into recently.”
Less common is when children go off the rails a bit and get into drugs, gambling or alcohol, she says.
“That can be a really difficult situation because you can see your children living in absolute poverty, getting into trouble with the law.”
The number one thing, Koh says, is that you have to look after yourself first.
“If you want to be able to help your children in a sustainable way then you have to maintain your own financial sustainability. There’s no point putting yourself into poverty.”
Koh says the greatest gift you can give your children is to teach them to be accountable, responsible and to become financially independent.
“That’s your biggest job as a parent, to teach your children the skills they need to get on with life.”
Have a will, Koh says.
“Children can be nice as pie to you and each other while you’re still alive but believe me, when you pass away there’ll be all these arguments over your estate.”
Take precautions if you’re gifting large sums of money and your child is in a relationship.
“You should always get legal advice when there’s a large sum of money at stake. What some people do when they’re for example giving money for a house deposit, they’ll do it as a loan, as a documented loan so that if the relationship ends that money can be claimed back again so that half of it doesn’t walk down the road with the partner that’s disappearing.”
There’s no tax paid on gifted money.
If your child is in a lot of credit card debit, one option is to buy the debt and then come to an arrangement over repayment, but Koh says the danger is that you bail them out once and the same thing happens again.
“Banks are partly at fault here, particularly with students, what have you, they’ll encourage them to take out a credit card as part of their banking package for study.
“Nobody should ever need a credit card really,” she says.
Liz Koh is a financial planner. The discussion here is of a general nature, and does not constitute financial advice.