While many younger parents around the country try to put money aside for their children’s financial future, alarming new data has found an increasing amount of people are being forced to dip into those savings due to the rising cost of living – essentially meaning your grandchildren might not be able to rely on the ‘Bank of Mum and Dad’ as much as the generations before them.
In total, Aussie parents have redrawn $1.3 billion from savings they’d set aside for their children to cover their own expenses including home expenses, groceries and even rent, data figures from Mozo.com.au have shown.
More than half of Aussie parents in the survey have set up an account for their children’s financial future. Worryingly, four in 10 of those parents admit to dipping into these savings to cover their own costs. On average, parents said they were withdrawing around $1,607 from these accounts.
According to the research, supplementing day-to-day necessities was the biggest reason, with 51 per cent of respondents admitting to using the savings to cover the cost of groceries, rent and mortgage repayments.
“It’s encouraging to see many Australian parents are being proactive when it comes to putting their kids on the right path to a successful financial future,” Mozo Director Kirsty Lamont said. “However, the benefit from these good intentions is being eroded by cost of living pressures with our results showing a huge chunk of the $1.3 billion withdrawn from savings intended to help their children going towards routine household bills. This is the Bank of Mum and Dad in reverse.”
One in five parents admitted taking more than $2,000 from these accounts, with the data suggesting the cost of living is continuing to rise and wages are failing to keep up.
“Everyday necessities are likely to be out of reach for many more household budgets, forcing parents to scrimp together funds from wherever they can – even if that means potentially jeopardising their children’s financial future,” Lamont added.
Many Baby Boomers didn’t receive this kind of financial boost from their own parents when they were growing up, so it raises question over whether it’s actually a bad thing for people to be dipping into these savings in the first place.
In addition to regular daily costs, the analysis also found unexpected expenses like car repairs and medical bills were the second biggest reason why parents were forced to dip in. Others used the funds set aside for their kids to pay for holidays, new cars and new technology including computers and televisions.
Although the data didn’t specify between Baby Boomers and younger generations of parents, the survey of 1,003 concentrated on parents aged 18 and above.
The new data comes after a Mozo report last year found the ‘Bank of Mum and Dad’ featured fifth on the country’s banking index, with parents loaning $65 billion to young Aussie home buyers.
That data found 29 per cent of Aussie parents were helping their children buy a home, with the average loan setting them back $64,000.
Meanwhile, St. George Bank recently said it was vital that all parents ask themselves three important questions before opening the ‘Bank of Mum and Dad’. The first is: ‘Do you plan to document the loan?’ Written evidence can prove the terms of an agreement down the road.
The second is: ‘Do you plan to discuss the issue with the family?’ Talking openly about a loan with all people involved – including other adult children, can prevent disputes down the track.
The third is: ‘Do you have the means to cover the loan yourself?’ Not being able to could affect your credit score if your son or daughter is unable to make their loan repayments.