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  • Should I lend my children money? (Getty Images/JackF)Source: Getty Images/JackF
Should you lend money to your grown-up children or not? The answer is often straight-forward for parents who’ve spent a lifetime loving and caring for their children. Experts though, encourage taking measures to protect your own financial future before digging into your retirement savings.
Amy Chien-Yu Wang

6 Mar 2020 - 5:39 PM  UPDATED 6 Mar 2020 - 5:39 PM

Parents tend to provide financial assistance to their adult children in education, home deposits and everyday expenses according to a 2017 research conducted by REST Industry Super. 

Cynthia Chung, a family disputes resolution practitioner at Relationships Australia, says it’s a common practice for parents of Chinese cultural backgrounds to lend to their children. 

Chung is part of Relationships Australia NSW’s Let’s Talk program that brings family members together to discuss challenging topics such as financial or living arrangements. 

She’s seen older people who are pressured against their will to fork out savings to fund their adult children with sometimes unfortunate outcomes.

They probably are concerned about rocking the boat or harming the relationship but at the end of the day, it’s about protecting themselves. Yes, we all want to be a loving parent, but we also need to be money-smart and also wise. 

Consequences for aged care pension

Drew Browne, a financial advisor at Sapience Financial and Investment Services, encourages retirees to check if lending to their children may affect their aged care pension or government subsidy. 

He says that an aged pensioner can give away up to $10,000 dollars a year or $30,000 dollars over a five-year period before the government wants to know about it to reassess your position.

Family loan agreement

If you have a large transaction, Browne suggests protecting yourself and the person you’re giving to with a family loan agreement as a safety net for unforeseen circumstances. 

Browne sees the family loan agreement as an extension of parenting. It instils a sense of discipline rather than entitlement in your adult child by detailing how and when the loan should be repaid at any stage of the future. 

If the person you’re giving the money to finds themselves up in the family law court through divorce, rather than have the money you gave them disappear, you can actually have it recognised by the family law court as an asset and you get it back. 

Pressure to help children

Peter Anitppa is a barrister and solicitor at Melbourne’s Antippa Lawyers. He observes that among his Greek and Middle Eastern clients, there is often a lot of pressure to help the children as there is also pressure from the children to want more.

There’s so many parents that just want to help their children that all their money goes to the children and they get kicked out of the house by the children having different plans for that house or wanting that house for themselves and then the parents have nowhere else to go. 

In contrast to parents who give unconditionally and end up worse off, Browne has seen positive outcomes for parents who lend money to their children with a loan agreement. 

Peter Antippa says complications tend to occur when people don’t document a loan or don’t investigate the loan properly. He suggests to find out what your legal rights are, and what you should or shouldn’t do.

Cynthia Chung says that if you don’t know how to get into these kinds of discussions, you may consider engaging a family counsellor to map out steps to handle possible scenarios. 

It’s okay to tell their children, ‘Okay, let me think about this. Let me do some calculation. Let me get some advice from my accountant or my tax consultant or even a lawyer or financial advisor.