What you need to know about lending money to your kids

Tips on how to avoid becoming the bank of mum and dad

It can be hard to know when to draw the line when it comes to lending money to someone you love, and even harder when that person is a child who you instinctively want to protect and encourage.

TODAY chatted to finance expert Scott Haywood from thefinanceguru.com.au to get his tips on the situations in which you may want to lend your children money, how to do it fairly and what the financial implications can be.

TODAY: What advice do you have for parents considering loaning their kids money?

HAYWOOD: The key is honesty and open communication about the parents’ money plans and how they have the capacity to help their children. If it becomes ‘secret squirrel’ then other family members will feel like they are not treated the same and think other siblings are getting a better deal.

TODAY: What if you have multiple kids?

HAYWOOD: This is where parents need to make it even. So the conversation would be — if you get married by 35 you all get $20,000 towards your wedding, if you don’t you will get that amount of money on that birthday to put towards shares or a property.

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TODAY: How do you determine who gets what?

HAYWOOD: How long is a piece of string? If you make it even, there can be no complaints. But in the event of de facto or divorce then the parents could actually lose money that they had the best intention on giving their child.

TODAY: What sort of implications can lending your kids money have on your financial position?

HAYWOOD: Goodbye retirement! If you are funding your children’s deposit on a home which four out of ten parents are funding through savings or superannuation, then the parents will have a lifestyle impact or be working longer.

TODAY: Are there any situations when you should definitely help, or when you should you absolutely say no?

HAYWOOD: The kidult — kids that are adults and want everything now, so get them to prove they can save or repay a loan before any money is changed hands.

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