Are we jeopardising the bank of Mum & Dad?

Are we jeopardising the bank of Mum & Dad?

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. 

6 steps to a sustainable Christmas

6 steps to a sustainable Christmas

Just as the Grinch stole Christmas, excess spending can rob us all of yuletide happiness. Seasonal credit card splurges can create ballooning long term debt, while unnecessary consumption inevitably leads to a blow-out in rubbish bin waste. The Commonwealth Bank of Australia estimates $11 billion is spent on presents each year, including some 20 million unwanted gifts. At the same time, seasonal celebrations boost landfill rubbish by a massive 30 per cent. So, if you want to max out the ho, ho, ho in Christmas this year, think of applying more whoa, whoa, whoa to your spending and consumption ideas. Here are six simple tips Ebenezer Scrooge would be proud of: Ninety per cent of Australians claim to recycle something, sometimes. What better way to do this than to shop for presents in one of Australia’s 2,500 opportunity shops? Forget the old days of chipped crockery and stained used clothing. Op shops are full of trendy, mint condition items and are the perfect place to find something slightly offbeat or unusual for your loved one. Save on postage and reduce needless paper usage by sending clever and original e-Christmas cards. Head online to create your seasonal messages to email to friends and family. Many websites provide free cards, while others offer designer animated versions. Instead of giving a physical gift, give an experience such as tickets to a concert or a voucher to use at a favourite restaurant. Better still, why not gift something special of yourself by offering to cook a meal or provide free babysitting for a family member. Giving an experience rather than a physical gift also means you don’t need to waste precious paper by wrapping the present or spend money on postage getting it to that special someone. If you do give a physical present, think of some clever ways to wrap it, so you’re not adding to the 150,000 km of wrapping paper Australians needlessly use each year – that’s enough paper to circle the equator 4 times. Wrap your gift in a re-usable patterned tea towel or scarf, or better still, invest in some brightly patterned boxes to hold your present that can be recycled from one Christmas to the next. Stop for a moment and look around your home to see what you can re-use and turn into a gift. A great place to start is the garden. Many plants can be easily divided and, in doing so, will create new plants you can pot up in a re-usable pot to give away. Take time to plan your meals this season and, wherever possible, cut down on buying heavily packaged or processed foods. Instead, buy fresh foods that can be eaten without much cooking, re-used as leftovers, or frozen for later consumption. It’s estimated that ninety per cent of Australians discard some 25 per cent of all the food they buy during December – that’s food that has been needlessly produced only to end up in Australia’s landfills. What really matters is remembering how blessed we are to be enjoying the festive season in whatever way we can and being with the people we care about most.   The information provided in this article is general in nature only and does not constitute personal financial advice.

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