Children’s savings get a boost from parents and grandparents

Children’s savings get a boost from parents and grandparents

GRANDPARENTS and parents worried about children’s financial futures are stashing money away for them, but often not in the best place.

A new study by Generation Life has found that 93 per cent of grandparents and 97 per cent of parents are concerned as high property prices and education costs threaten the next generation’s financial security.

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It found 47 per cent of parents and 15 per cent of grandparents are saving to help out, and a majority use bank accounts paying low interest rates.

Generation Life joint CEO Catherine van der Veen said there had been a structural shift over the past 20 years and people were no longer confident that children were financially able to “stand on their own two feet” when they finished high school.

“More than ever, the next generations are going to need help to pay for their education and to get into a house,” Ms van der Veen said.

She said the keys to helping out were:

• Start early to harness the benefits of compounding.

• Talk to children to educate them financially — “don’t leave it to the banks”.

• Ensure that the savings kept up with the rising cost of living.

One strategy is through investment bonds, long-term funds that spread money across a range of assets. Tax is paid within the bond at 30 per cent rather than the owner’s marginal tax rate.

“Investment bonds have been around for almost 40 years,” Ms van der Veen said. “They used to be popular long-term savings vehicles until superannuation was introduced.”

Kate Reid has five investment bonds, each worth $50,000, for her four grandchildren and said they had “done well”.

Mrs Reid said grandparents were worried about the effect of volatile house prices and low interest rates on younger generations.

“A lot of my friends are supporting their children, not only with financial help … but with childcare help as well so that both parents can work full time,” she said.

“And I think another problem is that, unlike the Baby Boomers, the present generations are having children later, closer to their parents’ retirement age.”

Wealth on Track principal Steve Greatrex said it was important that parents and grandparents looked after their own finances first, and also let younger generations “grow their own financial wings”.

“One of the biggest problems we have is people giving too much too soon, and then they are living a lot longer than expected and making themselves a lot poorer,” he said.

“I’m not a big fan of a parent giving a kid $100,000 because it encourages that dependency mindset.” A better option could be helping children get into property using parental guarantee loans, Mr Greatrex said.


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