financial stress Archives

Are we jeopardising the bank of Mum & Dad?

13 September, 20238 November, 2023 Updated on8 November, 2023 Education, Finance

The temptation is obvious. Soaring house prices have made buying a home tough for most home buyers and prompted many parents to think they should step in and make a financial contribution. The typical argument is that Mum and Dad don’t really need the money and that their children will inherit it one day anyway so it might as well be now when it can do some real good. As a result of this thinking, the Bank of Mum and Dad is now estimated to be one of the top 10 mortgage lenders in the country, as more and more people turn to their parents for financial help when buying a home. According to Digital Finance Analytics, parents are now contributing $90,000 on average towards the first home deposit of each of their adult children, up 20 per cent in the past twelve months. With the median house price in Australia’s combined capital cities now $896,000, parents contribute just over 10 per cent as a deposit, or if two sets of parents are involved, 20 per cent as a deposit. For most parents, this is a large amount of money, which can be given to their children either as a straight-out gift or as a formal loan or so-called ‘soft’ loan. Typically, this is done by drawing down against the value of their home as security and gifting the funds or providing a guarantee for their child to buy a home using their home as collateral. The financial comparison site, Finder, estimates that 60 per cent of all first-home buyers access funds from their parents to buy their first home. More, it found that 50 per cent of these children were facing some level of financial stress before deciding to buy a property with the help of their parents. While gaining financial support from Mum and Dad might be essential for many Australians to take that first step onto the home ownership ladder, is it a good decision for Mum and Dad? While some parents can afford this financial handout, it is only the case for some. Figures from the Association of Superannuation Funds of Australia show 1.68 million, or more than half of all Australians over 70, have no super. Of those older Australians who do have super, the median value is between $100,000 and $149,000, suggesting few in this age bracket have funds they can afford to give away. ASFA estimates only 185,000 Australians have $500,000 or more in super, and about 27,325 individuals have more than $2 million in super – a figure where giving funds to children might be affordable. These figures change considerably for Australians in the 50–70 age bracket as these younger Australians have had access to super for longer. However, it’s clear that the Bank of Mum and Dad is not as flush with funds as suspected, and many are sowing the seeds of their own financial destruction. While it is simple in the first flush of retirement to think there is more than enough to support Mum and Dad for as long as they live, life events might undermine this. No one knows how long they will live or what medical issues they may face through retirement, which could mean they themselves need every cent they have. Throw in the prospect of one or both parents needing to move into a nursing home at some stage, which can be a significant cost of around $500,000 per parent; then their finances start looking very shaky. The real fear is that in trying to help their children buy a home, all the Bank of Mum and Dad is really doing is pushing up house prices and sowing the seeds of their own financial problems. The information provided in this article is general in nature only and does not constitute personal financial advice.

Three-Minute Financial Check-up

11 January, 202321 December, 2022 Updated on21 December, 2022 Budgeting

While the standard of living is constantly improving in Australia, economic disruptions, stagnant wage growth and continually increasing house prices are putting more and more people under financial stress. A recent report by the social research group, the Melbourne Institute, ‘Taking the Pulse of the Nation’, found one in three Australians reported being under financial stress. It found that those on fixed-term contracts and anyone self-employed were particularly vulnerable to feeling financial stress, as were people employed in the hospitality and IT sectors. There is nothing worse than that niggling feeling that you’re not in control of your financial situation or worse, the dread that you may not be able to meet your next home loan repayments or that you’ve maxed out your credit cards. For many people, it is simply that their lives are so busy they never have the time to focus on their financial position and so the constant pressure of earning money and paying bills can easily spin out of control. Just as all financial situations can be improved, so all financial problems can be resolved and the earlier you act, the better. Just the simple step of reaching out for help will make you feel better about your financial situation. So, it may be as simple as being unsure whether you will have sufficient savings in super to retire in the way you were hoping to, or it might be that you have created a debt mountain that you feel helpless to reduce. If you find yourself spending a large part of the day worrying about your finances, if you have trouble sleeping at night or if your financial position is causing repeated arguments between you and the people you care most about, it is important that you reach out for help. A good place to start is completing this Three-Minute Financial Check-Up. If you answer no to any of the questions on this list, you should make time to discuss your financial situation with a qualified financial adviser. They will be able to tell you just how serious your situation is and more, how you can take steps immediately to improve your financial position and help you get you back on track, so you do feel in control. Your Three Minute Financial Check-Up Action YES NO Do you pay all your credit cards off in full by their due date? Do you sleep easy knowing all your bills will be paid when they fall due? Do you have a budget, and do you stick to it? Are you making all your loan repayments on time? Do you know exactly how much your home loan is today? Do you know what you would do if you lost your job tomorrow? Are you confident about your children’s financial future? Do you have life and total and permanent disability insurance in place? Do you have income protection in place? Do you know how much you have in super? Are you and your partner in agreement about your finances? Do you feel confident about your overall financial position? The information provided in this article is general in nature only and does not constitute personal financial advice.