A Delicate Balance, Navigating the 'Bank of Mum & Dad’
In an era where the dream of homeownership seems increasingly out of reach, many of us find ourselves turning to our parents for that much-needed financial boost. It's a trend that's become so prevalent that the 'Bank of Mum & Dad' ranks among the top lenders in the nation. But as we gratefully accept help with our home deposits, it's worth pausing to ask: at what cost does this assistance come?
The Reality Behind the Generosity
On the surface, it appears to make sense. Property prices are soaring, and without a significant leg up, many of us would remain perpetual renters. The rationale often goes like this: our parents don't need the cash right now, and it's going to come our way eventually, right? So why not now, when it can make a tangible difference?
However, this narrative misses a crucial point: not all parents are in a financial position to give, even if they want to. With the median superannuation balance for Australians over 70 not as robust as one might hope, and a significant number having no super at all, the picture starts to look less rosy.
The Hidden Costs and Risks
The generosity of parents is admirable, but the implications can be far-reaching. For starters, there's the impact on the property market itself. This influx of parental aid is inadvertently inflating house prices, making the market even more inaccessible for those without such support.
Then there's the question of sustainability. Life after retirement can be unpredictable, with potential medical expenses and the looming costs of aged care. The current average cost for a nursing home in Australia can be staggering, and it's a cost that many parents may not have factored into their retirement planning.
A Conversation Worth Having
So, before you lean on your parents to open their wallets, it's time for an honest conversation.
How will this financial help affect their life?
Have they considered the potential need for funds in the face of health challenges or the costs associated with aged care? (which can range up to $500,000 per parent).
What are your expectations on repayments?
What if we can’t repay for 1-2 years?
What’s your plans with the family home? (often where majority of wealth stored).
Is it fair to other children? (an “unfair” allocation could divide even the closest family).
Your Financial Independence and Their Security
As your financial adviser, my role is to help you forge a path to financial independence that doesn't compromise your parents' future. It's about finding a balance that works for everyone involved. There are strategies we can explore, from saving plans that accelerate your deposit accumulation to looking at less traditional pathways to property ownership.
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The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.