Advice for parents with adult kids at home: helping your little ducklings to fly

The latest Housing Income and Labour Dynamics (HILDA)[1] survey paints a stark picture of the affordability for young adults to move out of the family home. It found that over 50 percent of young Australians aged 18 to 29 still live with their parents, with the numbers climbing faster for women.

It’s no wonder with the rental property market in WA at its tightest in 40 years, a mere 0.9 per cent of properties being vacant in January, according to the Real Estate Institute of WA.

Like me, you may have adult children at home, and wondering how best to foster financial independence in your kids in readiness for the day they leave home. Here are 5 steps that may help build their financial confidence to launch.

Set up a savings plan

Set your child up on a strong financial footing by starting a regular savings plan equivalent to monthly rent. A study by MOZO[2] found that 43 per cent of Aussie parents allow their adult children to live at home rent-free. A wise step would be to charge your children weekly rent and direct these funds into a savings account saving up vital funds for a home deposit or a bond towards a rental property. Evidence of regular deposits into a savings account will do more to prove to a bank that your child can manage regular home loan repayments on their own in the future, and goes far to demonstrate their ability to meet financial obligations such as rental payments.

Grow your child’s savings

Choose a bank account that incentivizes young adults to save. In their recent findings, MOZO[3] lists banks such as Westpac and CUA in their top 7 best value youth savings account, offering higher than standard interest rates at around 3 percent. As this generation of young adults were born into a digital world, research shows that they are more likely to remain motivated when using the ‘gamified-effect’ to build financial security, putting the power to save in the palm of their hands through a mobile app, and rewarding smart savings decisions.

Use First home super saver

Owning a home is the great Australian Dream that any young adult would aspire to. Help them optimize savings for their first home, by utilizing the First home super saver (FHSS), a scheme introduced by the Australian Government in 2017. The FHSS scheme allows you to save up to $15,000 per annum for your first home inside your super fund, using pre-taxed dollars. For someone who is on $60,000 annual income, salary sacrificing $288 per week of equivalent rental payments into the FHSS could result in a tax saving of up to $2,958 per annum and a step closer to owning their first home.

Build an investment portfolio

Starting a small investment portfolio has never been more accessible. With the introduction of digital investment platforms such as Raiz, Six Park, SelfWealth, Stockspot and CommPocket, your adult children can build up an investment portfolio with as little as $500 and monthly top ups. A general rule of thumb is to invest for a minimum of 5 years as part of a long term wealth creation strategy and consider tolerance to risk.

Hand over some household responsibilities

While parents often say that their kids think money grows on trees, parents often don't sit down with their kids to show them what it costs to run a household. Turn your daily living into a learning experience.  Teach your children how to pay for household expenses such as an electricity bill or car insurance. They are less likely to think about such living costs as health insurance or council rates, but starting them off with a trip down to the grocery store to pay for ingredients for dinner, or a meal plan for the week will help them appreciate the financial cost of living.

It prepares them for life outside the comfort of the family home, putting them on the road to financial independence ready for launch.

Fran Hughes is a Certified Financial Planner and Head of Financial Solutions at Nexia Perth www.nexia.com.au