March 1, 2023 • 19 mins
Jess and Dom have savings strategies for parents looking to help their kids buy their first home.
It All Adds Up is the podcast where we make money easy to understand so that listeners can begin building their financial wealth. You can submit questions to italladdsup@nine.com.au for Jess and Dom to answer each week.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
S1 (00:07):
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it, and how to invest it. I'm senior
economics writer at the Sydney Morning Herald and The Age
newspaper's Jess Irvine.
S2 (00:19):
And I'm money editor Dom Powell. And this week we're
continuing our special series, focusing on real life budgets, money
questions and how you're tackling the rising cost of living.
S1 (00:28):
Yes, And this week's question comes from one of our
lovely listeners, Sam, who has sent us her budget and
wants to know how she might be able to help
her daughter achieve the great Aussie dream of home ownership.
So let's have a listen to her question.
S3 (00:45):
Hi. Yes. And Tom. My name is Sam and I'm
a 48 year old solo parent of one. I have
a small mortgage and emergency fund and my super is
tracking along nicely with property purchasing becoming increasingly difficult for
young people to achieve. I've been giving some thought to
what I can do to be in a financial position
that if needed, I may be able to help my daughter,
(01:07):
who is now 16 years old, into her own property
in the next 10 to 15 years. I know this
will look very different for every family, but it would
be great to hear your thoughts on budgeting for things
with a 10 to 15 year time frame. Thank you.
S2 (01:22):
Thanks for calling in, Sam. It's always good to hear
parents thinking about, you know, trying to help their kids,
you know, plan for the kids financial future, 10 to
15 years. Just that's a good long time frame. You'd
think you'd be able to achieve quite a lot in
that time.
S1 (01:35):
Yeah. You know, it's that old adage that little steps
really do add up. And if you have a big
enough time frame, you can, you know, put aside little
amounts that really do add up. And I love Sam
just as a person, but I love her budget that
she has sent through. And if anyone can do this,
if anyone can come up with a ten year plan,
I know it's because she sent us her her budget
(01:58):
spreadsheet where she uses the same color coordinated budget categories
that I also use. It's a beautiful rainbow. And she's
been you know, she's tracking her spending every month and
adding that all up. And there is wiggle room in
her budget. And, you know, she is she's on a
good income and she's got a relatively small mortgage that
(02:19):
she's incurring at the moment, which is about $650 a fortnight,
which is hashtag goals for a mortgage. So and she's
also doing great things like maxing out her super contributions
to make the most out of the tax breaks. She's
also started investing a little bit into buying ETFs, exchange
(02:41):
traded funds, putting about $200 a week into that. So
for Sam, it's a question of, you know, she's got
good habits in place, she's regularly saving. And then that
it's almost a moral question about how much do I,
you know, save for myself versus what do I owe
sort of in terms of help for my child in
(03:02):
helping them get into homeownership. Because I know everyone's like
not saying that's not the path to wealth, but I
wonder if that's a little bit of defeatism creeping in
because when something seems so unachievable, you think it's maybe not,
but actually our tax system is structured so that, you know,
the least tax you'll ever pay is on being able
to purchase a primary residence and enjoy tax free gains
(03:23):
on that. That is actually the system that is so
preferential if you can get into home ownership. So it
really is something worth looking at and a conversation that
is worth having between parents and kids. And I'm trying
to figure out myself, you know, my son, you know,
what is the best way for me to also save
to help him into home ownership in in the future? So, Sam,
(03:44):
you know, it's a fantastic, fantastic question. And there are
various strategies that we're going to we're going to pass
a workshop now, aren't we doing.
S2 (03:51):
Yeah. And I think if you thinking over a 10
to 15 year time frame, as we said, you know,
that's a good long period. But also anything could happen
in 10 to 15 years. Like right now we've got
a big fall in house prices, but they are still
sort of at, you know, quite a high level. You
would hope you would think maybe that intent of 15
years we might have some more sort of housing affordability
(04:13):
policies in place. This is.
S1 (04:14):
Lowell. I've been writing about this for 10 to 15
years and more, and we have still not ever fixed
that problem. So I remain.
S2 (04:21):
I live I live in joyful hope. This is May
being this is maybe optimistic, but I think it's still
wise for for Sam to to plan for all eventualities
considering the the sort of state of housing and the
set of housing over the past 10 to 15 years.
You're right. Yes. It probably looks like things are not
going to really get a great deal better for the
first homeowners amongst us. But anyway, how about we we
(04:43):
look through some we'll talk about some some options that
Sam might have in terms of, you know, being able
to put some some more money away for their daughter.
S1 (04:50):
I think we can sort of split the discussion up
to things that Sam can do herself and things that
she can help her daughter to do in terms of
doing her own savings. So, I mean, just in terms
of what Sam could be doing herself. We're currently putting
some extra money towards paying off the mortgage and also
(05:10):
putting more money into super, which won't be accessible, you know,
until a bit later on. Although if Sam is 48
now and she will be about 60 early sixties when
her daughter might be looking to purchase a property, But again,
she might want to do sooner or later. One thing
that is open to people at this stage and super
(05:30):
always changes is that when you get to that 60
or you meet one of the conditions of release, you're
allowed to access all of your super. You can just
currently take it all out in a lump sum and
we are seeing some. You know, access the super. Then
gift the money to the child as the deposit for
the first home. And then you've saved, you know, during
(05:51):
those 10 to 15 years in the low tax environment
of super. And then you pull it all out at
that stage and help your child. But that sort of
shackles you to you know, you need to meet some
of the conditions of release of super. You need to
actually stop working. That's just a fancy little thing that
could come into play. Or we're looking at saving the
money outside of super and not sort of paying down
(06:13):
the mortgage and trying to accumulate some sort of outside
of super accessible nest egg, which you could do in
cash or with such a long time horizon, we could
be looking at the ETFs or the shares. Even if
you're hoping for a bit of a turbocharged gain above
cash flow, that's also hard to predict.
S2 (06:32):
Yes. And like if we're looking at Sam's budget, she
has a number of sort of different future funds that
she puts money into, including one for just discretionary purchases
like holidays. And it looks like she puts about $400
a week into those various sort of future fund. So,
you know, even if you divvy that up a bit, right,
you know, you split it off, you maybe, you know,
(06:53):
make a third future fund called, you know, house or
something like that and you funnel a bit of money
into that over ten years, even if you putting in,
you know, 200 bucks a week, that's, you know, 50
to $100000 that you've saved. And that's just only if
you put it in cash. So like, that's one option
because considering yeah, ten years is a very long time away.
Like you start now, you can save quite a lot
(07:14):
of money in that in that period of time.
S1 (07:16):
Yes. So that's an option for Sam just to hold
that in her name. Another option in terms of saving
outside of super, you know, if her daughter is approaching
sort of 18 and the age at which you're able
to hold investments in your own account and be the
owner of shares, maybe you're gifting, giving the money to
your daughter who can then invested in her own name
(07:36):
and then when she comes to pay tax, know, presumably
her tax will be at a lower rate because she's
a lower income earner. So, you know, whether you hold
back the deposit and save it in your own name
or if you're starting to gift, you know, money away there,
there's rules around gifting if you're going to get the
age pension. But, you know, if it's smaller amounts, you know,
you might want to get advice. If it's if it's,
(07:58):
you know, really complicated for you. But, you know, just
that question of how do you start? I mean, and
this is the other strategy. How do you start to
encourage the child themselves to start saving up in their
own name? Because I think, you know, it would be
doing a disservice for kids if you just sort of say,
here's a bunch of cash, although what a lovely problem
(08:19):
to have. You also want to be instilling the good
habits and encouraging the saving with the child as well.
S2 (08:26):
So if you can sit down with your with your
daughter or your child and sort of talk about saving
strategies with them, you know, putting it all in context
of how crazy things are in the in the Australian
housing market, I think it's a really good thing to do.
And also like you can do things like co contributions, right,
where you're you say to your child that you will
(08:46):
put in, you know, you'll match every dollar they save,
you set up a sort of a super long term
can't touch it savings account. The banks often offer these
savings accounts where you can you know put a bunch
of cash in, but you're and you get a great
interest rate. But if you take it out, you lose
all of your interest rate, all that sort of stuff.
So something like that for the long term and you
(09:06):
match everything they put into that account. I think that's
a great sort of strategy for, you know, encouraging good
saving habits. And then, you know, over a ten year
period that that can get quite significant.
S1 (09:17):
Kids need to know that, you know, you save for things.
You get a certain amount of income, you can spend
it on things and you can allocate your money towards
your toys. Now, whatever they are, as they're getting older,
the different sort of toys that you're interested in. But
setting aside something for the future, I think that is
such a valuable conversation and I think Sam's in a
really good position to try and lead that conversation, although
(09:39):
I would just caution don't don't make it to in
your face, just gently, gently so that we're not just
turning the kids off the topic at all of saving.
S2 (09:48):
Yeah. So obviously there are some other ways to help
your children get into the housing market other than just
giving them a big stack of cash. And I believe
this is something you actually have experience with just in
terms of going guarantor or having a parents go guarantor
on your loan. What sort of advantages do we sort
of get from that? Like what's, what's the pros and
cons I suppose.
S1 (10:09):
Yeah. Look, so this is if you're saving largely in
your own right as the child and you've got a deposit,
but it's not at that full 20% and if we
don't get to the 20% we're incurring the extra charge
of lender's mortgage insurance which can add up to thousands
of dollars. One way parents can help, you know, without
stumping up cash, but help kids avoid having to pay
(10:29):
that extra charge. At least, you know, lenders will lend
to you with a 10% deposit in your own right. But,
you know, if you're missing, say, the 10% to get
to the 20%, parents can go guarantor on that. Amount.
So you're not actually committing as the parent to go
guarantor on the whole loan. But so say, for example,
(10:50):
it's a $500,000 property. We haven't got the full $100,000
as the 20% deposit. We've only got $50,000. You can
go guarantor, which is to say that I promise I'll,
I'll give you the bank. The missing $50,000. And you
have to prove that you would be as the parent,
that you've got the security to give. So the kid,
(11:12):
you know, falls in a ditch, stops paying the mortgage.
It's very sad scenario just outlined. For whatever reason, if
the child can't pay the mortgage, the bank comes knocking
on the door of the parent. And in the worst
case scenario where, you know, they were selling the home
and reclaiming the money, they would be saying to the parent,
where's the 50 grand? And if the parent has the
(11:33):
50 grand to stump up. You know, because I've got
it in cash, great. If not, they will be going
after the parents house. So you are putting in most cases,
putting security over your own home as well on the
line in the case that the banks are foreclosing on
your child or going up, having to go after you
for the money. So it's not an insubstantial thing that
(11:55):
you're doing. You have to probably trust your kids that
they're going to keep paying the mortgage because it can
rebound on you. That's the whole point. You're offering up
the security of your home. There are consequences to it,
but it is a way to save, you know, to
to help at least a little bit, you know, if
you're missing that full 20% deposit. So this is actually
(12:16):
exactly what I did when I went to go get
my loan. My parents stepped in and went guarantor on
the missing deposit. I didn't have the full 20% and
I was really worried about it. I was, you know,
which is probably why they were so confident to do
it for me. I was really worried about not being
able to, you know, pay my mortgage and then getting
them on the hook somehow. So as long as you
(12:37):
have the open conversation, you know, talk to the lender,
talk to the mortgage broker about what are the implications
of going guarantor on the loan and making sure that
you're comfortable, That is something that you can do to
help if you don't have, you know, just the cash
to give to your child, which lots of people will
be in that situation.
S2 (12:56):
Absolutely. I mean, a lot of people, you know, their
main asset is their home. Right. That that might be
the only sort of, you know, significant asset they have.
So this is a way for people who have, you know,
at least that asset to be able to help their
children get over that home ownership hurdle. Something else I
did want to sort of talk about, which I think
is worth mentioning when we're talking about this whole idea of,
(13:17):
you know, helping your children. Purchase property is that it's
all well and good to give your. You know to
help your child and either go guarantor or to you know,
give them some money or however you think you will
do it. But there's this whole other like side of
this that they also then have to be able to
service the loan. Right. You can give them 100 grand,
(13:38):
200 grand, and they can buy a lovely house. But
if they don't have the income to actually support paying
that mortgage, then it's all for naught. And especially if
you're going guarantor, because then there's an even higher chance that,
you know, it could backfire on you as well. So
I think that is something to think about as well.
Like whilst obviously a lot of parents want their children
(13:58):
to have a secure a house and income and all
that sort of stuff, you do really have to think that,
you know, can my child actually afford to live in a,
you know, $1.2 million property in Sydney, you know, and
pay a giant mortgage every week. Yeah.
S1 (14:15):
And kids will be, you know, when they will they'll
be adults by that time when they're purchasing the property,
they'll be assessed by the bank as to what they'll
be able to afford. So, yeah, another thing to keep
in mind, you know, one of the best gifts you
can give your children, you know, in in addition to
the budgeting skills. But is that advice around, you know,
thinking about your career, dedicating yourself to your education, you know,
(14:38):
helping kids steer themselves down a path so that they
are heading towards a job where that, you know, they
you know, and unfortunately, it is the case that, you know,
the full time permanent positions where you can earn the
steady income. It's much easier to borrow against those if
your child is going down a path of self-employment or
sporadic employment, it is harder to apply to the bank
(15:00):
and get the loans that you need to get into
the home ownership. So, I mean, you know, if your
child wants to pursue a career that is more self-employed
or self-directed, you know, I'm not saying don't do that,
but just being mindful of preparing your kid for the
future by, you know, securing that that good job that
can be the anchor for them for not only home ownership,
(15:21):
but the whole financial future. You know, that's just something
that I'm mindful of. And if people don't have the
resources to throw cash at their kids to buy a house,
you can still help them and shepherd them in terms
of what you teach them, in terms of the values of,
you know, getting jobs and building your skills, you know,
and that's another way to think about if you're thinking,
(15:41):
I don't have any money, that I can actually give
in cash to my child, you know, the skills that
you give them, the support that you give to them
and the nurturing that sort of enables them to go
off into the world and get a good job that
is valuable to and, you know, when it comes time
to buy the property that is going to to be
helping them and putting them in a good position.
S2 (16:00):
If you are a parent and similar to Sam and
you're thinking about helping your child to afford a property
one day in the future, yeah, maybe just either start
putting some money aside now. Doesn't have to be much.
Can be a little bit each month or each fortnight
or each week, you know, possibly thinking about other options
where you could, you know, maybe not just put it
in cash, maybe you could put it in some sort of,
(16:21):
you know, investment if you feel comfortable doing that and
over a long enough timeframe, you know, that will definitely
help you accumulate a decent sized deposit or at least
a start to a deposit.
S1 (16:32):
Yeah. And including your child in the conversation, I don't
know how young is too young to have the conversation
about home ownership amongst all the other conversations she's supposed
to have with kids, you know, the home ownership conversation about,
you know, beginning to save for your first home deposit.
I really think as teenagers, you can be starting to
have that conversation about where do you want to live?
You know, you did you know that, you know, tax
(16:52):
advantage to to purchase your own property that that is
a good, solid foundation for your future. How can we
afford that? I'm willing to help you. I want you
to also be involved. Show me you can save and
I will. I'll match your savings. Having that conversation early.
And then as things progressed, you know, talking to lenders
and brokers about how you can actually specifically help if
(17:14):
it's in terms of doing a guarantee and that sort
of thing. So for Sam, you know, having that long
term horizon, I think she's in a great position. She
has it. She is saving. She is a saver. I'm
sure that she's passing on some of those skills, even
only by demonstration effect that her child knows that mum,
you know, has a budget. Mom is saving, Mum prioritizes homeownership.
(17:35):
She's thinking of those long term goals. And I can't
help but think that that sort of thinking, you know,
you are what you see kids grow up repeating what
their parents do. So there's some fantastic, you know, habits
in place that should set her daughter up really well
for the long term.
S2 (17:51):
Absolutely. And as always, thank you, Sam. And thank you
for everyone else who's been sending in your budgets. If
you feel like sending a budget, hit us up at
it all adds up at 9:00 today. You send us
some details, any questions you have, and it'd be really
helpful if you could also send in a little voice
memo of you asking the question. So if we if
(18:12):
we do choose you, we can we can play it
on the podcast like we did today.
S1 (18:15):
Yep. Just whip out your iPhone, do a voice memo,
a voice note, and. Email it to us at. It
all adds up at nine.com.au EU. And we would love
to have a look at your budgets and respond to
your questions.
S2 (18:27):
Thanks so much, everybody, and we'll see you next week.
S1 (18:30):
See you next week. This episode of It All Adds
Up was produced by Chee Wong. The information discussed is
general in nature and does not take into account your
personal financial situation, goals or objectives. You should always do
your own research or get professional advice before making any
major financial decisions. If you like today's episode, hit follow
(18:54):
in your podcast app. Leave a review and recommend it
to all your friends. You can submit your listener questions
in text or audio format at. It all adds up
at 9:00 PM. You.
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it, and how to invest it. I'm senior
economics writer at the Sydney Morning Herald and The Age
newspaper's Jess Irvine.
S2 (00:19):
And I'm money editor Dom Powell. And this week we're
continuing our special series, focusing on real life budgets, money
questions and how you're tackling the rising cost of living.
S1 (00:28):
Yes, And this week's question comes from one of our
lovely listeners, Sam, who has sent us her budget and
wants to know how she might be able to help
her daughter achieve the great Aussie dream of home ownership.
So let's have a listen to her question.
S3 (00:45):
Hi. Yes. And Tom. My name is Sam and I'm
a 48 year old solo parent of one. I have
a small mortgage and emergency fund and my super is
tracking along nicely with property purchasing becoming increasingly difficult for
young people to achieve. I've been giving some thought to
what I can do to be in a financial position
that if needed, I may be able to help my daughter,
(01:07):
who is now 16 years old, into her own property
in the next 10 to 15 years. I know this
will look very different for every family, but it would
be great to hear your thoughts on budgeting for things
with a 10 to 15 year time frame. Thank you.
S2 (01:22):
Thanks for calling in, Sam. It's always good to hear
parents thinking about, you know, trying to help their kids,
you know, plan for the kids financial future, 10 to
15 years. Just that's a good long time frame. You'd
think you'd be able to achieve quite a lot in
that time.
S1 (01:35):
Yeah. You know, it's that old adage that little steps
really do add up. And if you have a big
enough time frame, you can, you know, put aside little
amounts that really do add up. And I love Sam
just as a person, but I love her budget that
she has sent through. And if anyone can do this,
if anyone can come up with a ten year plan,
I know it's because she sent us her her budget
(01:58):
spreadsheet where she uses the same color coordinated budget categories
that I also use. It's a beautiful rainbow. And she's
been you know, she's tracking her spending every month and
adding that all up. And there is wiggle room in
her budget. And, you know, she is she's on a
good income and she's got a relatively small mortgage that
(02:19):
she's incurring at the moment, which is about $650 a fortnight,
which is hashtag goals for a mortgage. So and she's
also doing great things like maxing out her super contributions
to make the most out of the tax breaks. She's
also started investing a little bit into buying ETFs, exchange
(02:41):
traded funds, putting about $200 a week into that. So
for Sam, it's a question of, you know, she's got
good habits in place, she's regularly saving. And then that
it's almost a moral question about how much do I,
you know, save for myself versus what do I owe
sort of in terms of help for my child in
(03:02):
helping them get into homeownership. Because I know everyone's like
not saying that's not the path to wealth, but I
wonder if that's a little bit of defeatism creeping in
because when something seems so unachievable, you think it's maybe not,
but actually our tax system is structured so that, you know,
the least tax you'll ever pay is on being able
to purchase a primary residence and enjoy tax free gains
(03:23):
on that. That is actually the system that is so
preferential if you can get into home ownership. So it
really is something worth looking at and a conversation that
is worth having between parents and kids. And I'm trying
to figure out myself, you know, my son, you know,
what is the best way for me to also save
to help him into home ownership in in the future? So, Sam,
(03:44):
you know, it's a fantastic, fantastic question. And there are
various strategies that we're going to we're going to pass
a workshop now, aren't we doing.
S2 (03:51):
Yeah. And I think if you thinking over a 10
to 15 year time frame, as we said, you know,
that's a good long period. But also anything could happen
in 10 to 15 years. Like right now we've got
a big fall in house prices, but they are still
sort of at, you know, quite a high level. You
would hope you would think maybe that intent of 15
years we might have some more sort of housing affordability
(04:13):
policies in place. This is.
S1 (04:14):
Lowell. I've been writing about this for 10 to 15
years and more, and we have still not ever fixed
that problem. So I remain.
S2 (04:21):
I live I live in joyful hope. This is May
being this is maybe optimistic, but I think it's still
wise for for Sam to to plan for all eventualities
considering the the sort of state of housing and the
set of housing over the past 10 to 15 years.
You're right. Yes. It probably looks like things are not
going to really get a great deal better for the
first homeowners amongst us. But anyway, how about we we
(04:43):
look through some we'll talk about some some options that
Sam might have in terms of, you know, being able
to put some some more money away for their daughter.
S1 (04:50):
I think we can sort of split the discussion up
to things that Sam can do herself and things that
she can help her daughter to do in terms of
doing her own savings. So, I mean, just in terms
of what Sam could be doing herself. We're currently putting
some extra money towards paying off the mortgage and also
(05:10):
putting more money into super, which won't be accessible, you know,
until a bit later on. Although if Sam is 48
now and she will be about 60 early sixties when
her daughter might be looking to purchase a property, But again,
she might want to do sooner or later. One thing
that is open to people at this stage and super
(05:30):
always changes is that when you get to that 60
or you meet one of the conditions of release, you're
allowed to access all of your super. You can just
currently take it all out in a lump sum and
we are seeing some. You know, access the super. Then
gift the money to the child as the deposit for
the first home. And then you've saved, you know, during
(05:51):
those 10 to 15 years in the low tax environment
of super. And then you pull it all out at
that stage and help your child. But that sort of
shackles you to you know, you need to meet some
of the conditions of release of super. You need to
actually stop working. That's just a fancy little thing that
could come into play. Or we're looking at saving the
money outside of super and not sort of paying down
(06:13):
the mortgage and trying to accumulate some sort of outside
of super accessible nest egg, which you could do in
cash or with such a long time horizon, we could
be looking at the ETFs or the shares. Even if
you're hoping for a bit of a turbocharged gain above
cash flow, that's also hard to predict.
S2 (06:32):
Yes. And like if we're looking at Sam's budget, she
has a number of sort of different future funds that
she puts money into, including one for just discretionary purchases
like holidays. And it looks like she puts about $400
a week into those various sort of future fund. So,
you know, even if you divvy that up a bit, right,
you know, you split it off, you maybe, you know,
(06:53):
make a third future fund called, you know, house or
something like that and you funnel a bit of money
into that over ten years, even if you putting in,
you know, 200 bucks a week, that's, you know, 50
to $100000 that you've saved. And that's just only if
you put it in cash. So like, that's one option
because considering yeah, ten years is a very long time away.
Like you start now, you can save quite a lot
(07:14):
of money in that in that period of time.
S1 (07:16):
Yes. So that's an option for Sam just to hold
that in her name. Another option in terms of saving
outside of super, you know, if her daughter is approaching
sort of 18 and the age at which you're able
to hold investments in your own account and be the
owner of shares, maybe you're gifting, giving the money to
your daughter who can then invested in her own name
(07:36):
and then when she comes to pay tax, know, presumably
her tax will be at a lower rate because she's
a lower income earner. So, you know, whether you hold
back the deposit and save it in your own name
or if you're starting to gift, you know, money away there,
there's rules around gifting if you're going to get the
age pension. But, you know, if it's smaller amounts, you know,
you might want to get advice. If it's if it's,
(07:58):
you know, really complicated for you. But, you know, just
that question of how do you start? I mean, and
this is the other strategy. How do you start to
encourage the child themselves to start saving up in their
own name? Because I think, you know, it would be
doing a disservice for kids if you just sort of say,
here's a bunch of cash, although what a lovely problem
(08:19):
to have. You also want to be instilling the good
habits and encouraging the saving with the child as well.
S2 (08:26):
So if you can sit down with your with your
daughter or your child and sort of talk about saving
strategies with them, you know, putting it all in context
of how crazy things are in the in the Australian
housing market, I think it's a really good thing to do.
And also like you can do things like co contributions, right,
where you're you say to your child that you will
(08:46):
put in, you know, you'll match every dollar they save,
you set up a sort of a super long term
can't touch it savings account. The banks often offer these
savings accounts where you can you know put a bunch
of cash in, but you're and you get a great
interest rate. But if you take it out, you lose
all of your interest rate, all that sort of stuff.
So something like that for the long term and you
(09:06):
match everything they put into that account. I think that's
a great sort of strategy for, you know, encouraging good
saving habits. And then, you know, over a ten year
period that that can get quite significant.
S1 (09:17):
Kids need to know that, you know, you save for things.
You get a certain amount of income, you can spend
it on things and you can allocate your money towards
your toys. Now, whatever they are, as they're getting older,
the different sort of toys that you're interested in. But
setting aside something for the future, I think that is
such a valuable conversation and I think Sam's in a
really good position to try and lead that conversation, although
(09:39):
I would just caution don't don't make it to in
your face, just gently, gently so that we're not just
turning the kids off the topic at all of saving.
S2 (09:48):
Yeah. So obviously there are some other ways to help
your children get into the housing market other than just
giving them a big stack of cash. And I believe
this is something you actually have experience with just in
terms of going guarantor or having a parents go guarantor
on your loan. What sort of advantages do we sort
of get from that? Like what's, what's the pros and
cons I suppose.
S1 (10:09):
Yeah. Look, so this is if you're saving largely in
your own right as the child and you've got a deposit,
but it's not at that full 20% and if we
don't get to the 20% we're incurring the extra charge
of lender's mortgage insurance which can add up to thousands
of dollars. One way parents can help, you know, without
stumping up cash, but help kids avoid having to pay
(10:29):
that extra charge. At least, you know, lenders will lend
to you with a 10% deposit in your own right. But,
you know, if you're missing, say, the 10% to get
to the 20%, parents can go guarantor on that. Amount.
So you're not actually committing as the parent to go
guarantor on the whole loan. But so say, for example,
(10:50):
it's a $500,000 property. We haven't got the full $100,000
as the 20% deposit. We've only got $50,000. You can
go guarantor, which is to say that I promise I'll,
I'll give you the bank. The missing $50,000. And you
have to prove that you would be as the parent,
that you've got the security to give. So the kid,
(11:12):
you know, falls in a ditch, stops paying the mortgage.
It's very sad scenario just outlined. For whatever reason, if
the child can't pay the mortgage, the bank comes knocking
on the door of the parent. And in the worst
case scenario where, you know, they were selling the home
and reclaiming the money, they would be saying to the parent,
where's the 50 grand? And if the parent has the
(11:33):
50 grand to stump up. You know, because I've got
it in cash, great. If not, they will be going
after the parents house. So you are putting in most cases,
putting security over your own home as well on the
line in the case that the banks are foreclosing on
your child or going up, having to go after you
for the money. So it's not an insubstantial thing that
(11:55):
you're doing. You have to probably trust your kids that
they're going to keep paying the mortgage because it can
rebound on you. That's the whole point. You're offering up
the security of your home. There are consequences to it,
but it is a way to save, you know, to
to help at least a little bit, you know, if
you're missing that full 20% deposit. So this is actually
(12:16):
exactly what I did when I went to go get
my loan. My parents stepped in and went guarantor on
the missing deposit. I didn't have the full 20% and
I was really worried about it. I was, you know,
which is probably why they were so confident to do
it for me. I was really worried about not being
able to, you know, pay my mortgage and then getting
them on the hook somehow. So as long as you
(12:37):
have the open conversation, you know, talk to the lender,
talk to the mortgage broker about what are the implications
of going guarantor on the loan and making sure that
you're comfortable, That is something that you can do to
help if you don't have, you know, just the cash
to give to your child, which lots of people will
be in that situation.
S2 (12:56):
Absolutely. I mean, a lot of people, you know, their
main asset is their home. Right. That that might be
the only sort of, you know, significant asset they have.
So this is a way for people who have, you know,
at least that asset to be able to help their
children get over that home ownership hurdle. Something else I
did want to sort of talk about, which I think
is worth mentioning when we're talking about this whole idea of,
(13:17):
you know, helping your children. Purchase property is that it's
all well and good to give your. You know to
help your child and either go guarantor or to you know,
give them some money or however you think you will
do it. But there's this whole other like side of
this that they also then have to be able to
service the loan. Right. You can give them 100 grand,
(13:38):
200 grand, and they can buy a lovely house. But
if they don't have the income to actually support paying
that mortgage, then it's all for naught. And especially if
you're going guarantor, because then there's an even higher chance that,
you know, it could backfire on you as well. So
I think that is something to think about as well.
Like whilst obviously a lot of parents want their children
(13:58):
to have a secure a house and income and all
that sort of stuff, you do really have to think that,
you know, can my child actually afford to live in a,
you know, $1.2 million property in Sydney, you know, and
pay a giant mortgage every week. Yeah.
S1 (14:15):
And kids will be, you know, when they will they'll
be adults by that time when they're purchasing the property,
they'll be assessed by the bank as to what they'll
be able to afford. So, yeah, another thing to keep
in mind, you know, one of the best gifts you
can give your children, you know, in in addition to
the budgeting skills. But is that advice around, you know,
thinking about your career, dedicating yourself to your education, you know,
(14:38):
helping kids steer themselves down a path so that they
are heading towards a job where that, you know, they
you know, and unfortunately, it is the case that, you know,
the full time permanent positions where you can earn the
steady income. It's much easier to borrow against those if
your child is going down a path of self-employment or
sporadic employment, it is harder to apply to the bank
(15:00):
and get the loans that you need to get into
the home ownership. So, I mean, you know, if your
child wants to pursue a career that is more self-employed
or self-directed, you know, I'm not saying don't do that,
but just being mindful of preparing your kid for the
future by, you know, securing that that good job that
can be the anchor for them for not only home ownership,
(15:21):
but the whole financial future. You know, that's just something
that I'm mindful of. And if people don't have the
resources to throw cash at their kids to buy a house,
you can still help them and shepherd them in terms
of what you teach them, in terms of the values of,
you know, getting jobs and building your skills, you know,
and that's another way to think about if you're thinking,
(15:41):
I don't have any money, that I can actually give
in cash to my child, you know, the skills that
you give them, the support that you give to them
and the nurturing that sort of enables them to go
off into the world and get a good job that
is valuable to and, you know, when it comes time
to buy the property that is going to to be
helping them and putting them in a good position.
S2 (16:00):
If you are a parent and similar to Sam and
you're thinking about helping your child to afford a property
one day in the future, yeah, maybe just either start
putting some money aside now. Doesn't have to be much.
Can be a little bit each month or each fortnight
or each week, you know, possibly thinking about other options
where you could, you know, maybe not just put it
in cash, maybe you could put it in some sort of,
(16:21):
you know, investment if you feel comfortable doing that and
over a long enough timeframe, you know, that will definitely
help you accumulate a decent sized deposit or at least
a start to a deposit.
S1 (16:32):
Yeah. And including your child in the conversation, I don't
know how young is too young to have the conversation
about home ownership amongst all the other conversations she's supposed
to have with kids, you know, the home ownership conversation about,
you know, beginning to save for your first home deposit.
I really think as teenagers, you can be starting to
have that conversation about where do you want to live?
You know, you did you know that, you know, tax
(16:52):
advantage to to purchase your own property that that is
a good, solid foundation for your future. How can we
afford that? I'm willing to help you. I want you
to also be involved. Show me you can save and
I will. I'll match your savings. Having that conversation early.
And then as things progressed, you know, talking to lenders
and brokers about how you can actually specifically help if
(17:14):
it's in terms of doing a guarantee and that sort
of thing. So for Sam, you know, having that long
term horizon, I think she's in a great position. She
has it. She is saving. She is a saver. I'm
sure that she's passing on some of those skills, even
only by demonstration effect that her child knows that mum,
you know, has a budget. Mom is saving, Mum prioritizes homeownership.
(17:35):
She's thinking of those long term goals. And I can't
help but think that that sort of thinking, you know,
you are what you see kids grow up repeating what
their parents do. So there's some fantastic, you know, habits
in place that should set her daughter up really well
for the long term.
S2 (17:51):
Absolutely. And as always, thank you, Sam. And thank you
for everyone else who's been sending in your budgets. If
you feel like sending a budget, hit us up at
it all adds up at 9:00 today. You send us
some details, any questions you have, and it'd be really
helpful if you could also send in a little voice
memo of you asking the question. So if we if
(18:12):
we do choose you, we can we can play it
on the podcast like we did today.
S1 (18:15):
Yep. Just whip out your iPhone, do a voice memo,
a voice note, and. Email it to us at. It
all adds up at nine.com.au EU. And we would love
to have a look at your budgets and respond to
your questions.
S2 (18:27):
Thanks so much, everybody, and we'll see you next week.
S1 (18:30):
See you next week. This episode of It All Adds
Up was produced by Chee Wong. The information discussed is
general in nature and does not take into account your
personal financial situation, goals or objectives. You should always do
your own research or get professional advice before making any
major financial decisions. If you like today's episode, hit follow
(18:54):
in your podcast app. Leave a review and recommend it
to all your friends. You can submit your listener questions
in text or audio format at. It all adds up
at 9:00 PM. You.
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