Many parents across Australia relish the opportunity to help their adult children and spend more time with the grandkids by providing childcare, but during COVID-19, much of this came to an abrupt halt. While some have returned to the previous level of caregiving, others have lingering health concerns or travel restrictions that continue to impact these arrangements.
While it’s likely that seeing the grandkids again is high on your wish list, you may also be thinking about how you can help your children from afar. Childcare is a significant household expense, with the average cost per day per child (before subsidies) sitting at $111.38, even working three days a week with only one child in care adds up to over $17K annually.
In today’s climate, where many people have lost income through pay cuts, reduction in hours or losing employment, this may be heightened. Here are our tips for helping your children financially as we recover from COVID-19.
Plan and discuss your return to caregiving
If you were previously providing care to your grandchildren or wish to moving forward, it’s a good time to have a discussion and put some clear plans and a timeline in place to help them plan their finances and interim care options.
That way you can discuss any health concerns and consider the best way to approach caregiving post-COVID-19, agreeing on things like what will happen if one of your grandchildren has symptoms of illness on your care day. If your children haven’t approached you about returning, it’s worthwhile starting the discussion, as they may be reticent to ask you in case you are not comfortable.
Consider a cash gift or loan
If you aren’t able to resume care arrangements or want to provide extra support, a cash gift can be a great way to do this, helping to cover the cost of childcare while your children and their families navigate uncertainty.
Of course, it’s important to ensure that you are in a financially-sound position before you even mention this, and it’s best to speak to your adviser to understand how it could affect your finances. Also, if you are retired or receive government payments, it’s worth noting that you can give a total of $10,000 worth of gifts in a year before gift amounts start to be treated as a deprived asset. If you are in this situation, it’s important to understand how gifting rules apply to you before making any decisions.
If you are worried about the financial implications of gifting or will require repayment, you can structure it as a loan, instead of a gift. It’s best to get professional advice on how to do this to protect yourself.
Beyond the financial implications, there can be emotional consequences, particularly if you are providing this support to one child and not the other/s. Of course, there can be good reasons for this, such as one child losing employment, but it’s best to be open and honest about the arrangement with all of the family from the outset.
Make a super contribution
If your child doesn’t have an immediate need for the cash to cover basic living expenses, but you’d still like to help out, a super contribution can be a great option. If they have taken a pay cut or lost hours, their employer contribution will most likely have reduced too, and this way you’ll be providing them with support that will continue to grow and help them into the future.
As with a cash gift, it is important to understand the ramifications for your own finances and the potential risks to your entitlements, so again, best to seek advice. Another consideration with superannuation gifts is that if a married child’s relationship breaks down, their super is treated as an asset that may be split in divorce proceedings.
Help with mortgage repayments
Mortgage repayments have been a hot topic with most lenders offering payment freezes, and many borrowers taking up this option to control household costs. Pausing your mortgage is not without consequence; most borrowers will end up paying more interest over the life of their loan as a result. Arranging to make a mortgage payment directly to the lender, rather than as a cash gift, can be a great way to ease the burden, while also ensuring your money isn’t used for discretionary spending, which can be a concern for some.
Get professional advice
As mentioned above, there can be financial and emotional implications to giving cash gifts, so it’s best to enter these arrangements with caution and seek financial and legal advice before making a final decision.
On top of potential financial issues there are pitfalls. One mistake we see with financial support for adult children is enabling poor financial choices. When providing financial help, you want to make sure it is about a hand-up, not a hand-out that creates a dependency. That’s why helping with a specific purpose like childcare, mortgage or super to avoid discretionary spending are preferred options for many Apt clients.
If you think your children have previously made or are at risk of making poor financial decisions in the future, another way you can help is to introduce them to a trusted financial adviser and potentially help them cover initial advice fees. That way, you’ll be giving them access to a personal finance coach who can help them get on track with their finances now and into the future.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.