Helping your kids with + without money
Written by Glen James
Host of the Retire Right & money money money (formerly my millennial money) podcasts & author of The Quick-Start Guide to Investing.
I’ve had many conversations with podcast listeners over the years with parents who want to help their kids get ahead financially. It makes sense! But what is the best way to do this? I’m going to share a few tips from my latest podcast on how to support your kids without sacrificing your own financial security.
Not everyone’s in a position to help financially—and that’s totally fine. I’m going to share ways you can help set you kids up both with and without money.
1. The two best FREE gifts you can give
The two best free gifts are: helping them build financial knowledge and making sure your own needs are met. First, empowering your kids to educate themselves about personal finances—whether through books, podcasts, or financial courses—sets them up for long-term success. Show them the money money money podcast! There’s a heap of free information out there. The second gift is ensuring your own financial security. By having a solid retirement plan and taking care of your own future, you reduce the risk of becoming financially dependent on your children later, allowing them to focus on building their own wealth without worry.
2. Straight-up gifts: how they work in Australia
If you do have money to offer your kids, one of the easiest ways to help your kids is with a gift. In Australia, there’s no gift tax, so you can give money to your children without them needing to worry about taxes. If you’re not on any Centrelink benefits, you can gift as much as you like without any complications. However, if you’re on the age pension, there are limits. You can give up to $10,000 a year (or a maximum of $30,000 over five years) before it starts affecting your pension. If you gift more, it’s treated as an asset, which could reduce your pension temporarily.
3. Gifting vs. loaning: protecting your wealth
When it comes to giving large amounts—like for a house deposit or big expenses—consider whether it’s better to gift or loan the money. Why? It’s all about protecting yourself. If your child experiences a relationship breakdown or financial troubles, having a formal loan agreement can safeguard that money.
While you might feel that smaller gifts don't need formal paperwork, I believe larger sums could be worth having some protection in place. For a small legal cost, you can have a loan agreement drawn up. Make sure you get state based legal advice as there may be a requirement to have a payment made within a certain timeframe to ensure the loan remains active.
4. Covering specific costs
If you’re not keen on handing over cash, you can still help by covering specific expenses like:
Stamp duty: Instead of giving a lump sum, you could help by paying the stamp duty when your child buys their first home. You might agree to do the same for their siblings when they’re ready to buy.
Lender’s mortgage insurance (LMI): If your child doesn’t have a full 20% deposit for their home, they might need to pay LMI. This could be tens of thousands of dollars. You can help by covering this cost and getting them into their new home faster.
I go into more detail about how you can support your kids in a recent podcast episode, 233 smart ways to help your kids financially or into their first home. Have a listen:
Community question
Community member asks: If you're in your mid-50s, working full-time, and your spouse is in her early 50s and not working, would it be a good idea to put $960,000 from the sale of an investment property into super using the non-concessional contributions this financial year and the three-year bring-forward rule next financial year? We have no debts.
Glen: Hey! Great question! What you're referring to is the strategy of maximising non-concessional contributions to super, which is when you take after-tax money and move it into the super environment. This gives you the advantage of a tax-free growth phase once you’re in pension phase. In your case, if you’re selling an investment property and the tax has already been paid on the proceeds, it makes sense to consider moving this money into super over two financial years—$120,000 this year, then $360,000 in July using the bring-forward rule, and doing the same for your partner.
The $960,000 you’re referring to would allow both of you to maximise these contributions without breaching any limits. This is a solid strategy in theory because it gets a significant amount of money into a tax-efficient environment. However, it’s essential to think about how locking this money into super will impact your overall flexibility. You can’t access these funds until you’re at least 60 & retired, so if something changes—like your work situation or health—you’ll want to make sure you have enough liquid assets outside of super to manage until then. There also may be some tax planning involved within the same financial year that the property sold to maximise your unused concessional contributions over the previous 5 years. This is the difference between the cap and what your employer has contributed.
Lastly, while this sounds like a great strategy, I always recommend getting some tailored financial advice when dealing with large sums like this. Superannuation rules can be tricky, and it’s important to factor in your whole financial picture, including estate planning and any Centrelink implications. With a windfall this big, you want to make sure you're not leaving any stones unturned!
