While many Australian parents want to support their children and grandchildren with cash gifts and loans, they also need financial security in their later years, says Marshall Ross, Partner Education Manager at Acenda.
Speaking during an online Australian seminar on generational wealth transfer – in Australia A$3 trillion is expected to pass from baby boomers to younger generations over the coming years – Ross touched on the legal risks involved in parents handing out cash to their kids, and noted that the bank of mum and dad is now the fifth-largest lender in Australia with A$35bn on loan.
Parents are not just helping their children buy their first home, he said. They are also chipping in to pay for groceries, general bills, expenses, and grandchildren’s education.
Meanwhile, generous parents will need money for healthcare, living expenses, and aged care, meaning their good intentions could leave them short when their ability to earn money is long gone.
“All of these complexities come with retirement and increased lifespans,” he said. “A lot of people don’t expect their children to stop asking for money.”
Ross said 22% of parents expect to fund their children by cutting back on their own expenses“…and that worries me”.
…A lot of people don’t expect their children to stop asking for money…
“Two-thirds of them say they’re risking financial hardship, or potentially feel like they’re exposing themselves, by helping their children,” said Ross.
“In the past, it would be quite common for the accumulator – or the younger people – to look after their parents in retirement.
“We’re seeing that with the bank of mum and dad, intergenerational wealth transfer has been flipped – wealth is being transferred pre-death.”
He said this situation creates a lot of challenges that both generations aren’t necessarily talking about, and could leave retirees exposed to financial risk from the unplanned transfer of wealth.
Joining Ross on the panel were Pedro Marin Ramirez, MD Marin Wealth, Brad Monk, a Senior Financial Adviser at LifePath Financial Planning, and Kate Kimmorley, Principal, Kimmorley Financial Management.