There are many ways to help your adult child purchase their first strata residence but one of the most satisfying is to teach them to save the deposit themselves.
It should come as no surprise to learn that the combination of fewer work opportunities, high education fees and disproportionate housing costs means those aged 20 to 40 are finding it harder than ever to get on their feet financially.
And, it seems, it’s their parents who are paying the price.
Statistics from the latest Housing Income and Labour Dynamics (HILDA) Survey show a trend towards young adults staying in the family home longer with 56% of men aged 18 to 29 and 54% of women the same age now living under their parents’ roof.
Numerous reports show Australian parents spend a combined $235 million each week on adult children living at home, with most allowing their offspring to live rent-free.
Equally, data from Digital Finance Analytics shows the ‘Bank of Mum and Dad’ now ranks as the 10th largest lender in the country with 55 per cent of first-time buyers now receiving financial assistance from their parents to get onto the property ladder.
The same research shows that where a cash injection is involved the average amount being lent or given by parents to their adult children to purchase their first property is $89,000.
But external factors are not always the reason why some adult children struggle with their finances. For some, their circumstances have been brought about due to their own financial mismanagement.
Keystone Wealth general manager Richard Liverpool says there are a number of ways parents can assist their adult children to overcome frivolous spending habits, irresponsible credit card use, or bad credit to develop healthy financial habits.
Liverpool says the first thing you should do is to openly communicate with your children while setting realistic boundaries.
Talking money with loved ones can be uncomfortable but honesty is essential, he says.
“Choose a moment to sit down when you have time to talk. Explain your reasoning, the impact the current situation has on you, and what you’re going to do differently. If your kids are at home and you’ve decided to charge fixed rent and board this is the perfect time to bring that up.”
It is also important for your adult children to realise that you don’t have an endless supply of cash to support them.
It’s natural to want to be there for your children but adding an extra flow of income without expectations doesn’t do anyone any favours, he says.
“If you can, try to provide financial incentives to save, such as matching every dollar they put aside. If they still need loans to supplement their income, organise a way to give the loans in instalments with an agreement. For example, you could ask for evidence that the money is being used to make repayments, or whatever you decide. Make future loans dependent on goals being reached.”
Next, Liverpool says, parents should aim to educate their children in financial literacy.
If you’ve never had a real talk about money before, your new relationship should involve some education. For example, explaining the difference between good debt and bad debt.
“If you’re looking for a relatable example, compare the difference between a car loan and a home loan. After 10 years a new car will have dramatically depreciated in value, while a home will have improved in value, while providing a huge amount of stability in later years,” he says.
Perhaps the most important step in sound financial management is creating a budget, Liverpool says.
“If your child has never used one before you might like to start this chat by setting priorities.”
Lastly, a great tip to help parents assist their children to get together sufficient savings for a deposit is to lead by example.
Set a good example by keeping to your own budget and managing your finances responsibly, Liverpool says.
“If you’re comfortable, you could even share your own household budget to communicate the reality of daily expenses. Monkey see monkey do, right?”