Is a BoMaD ruining your retirement?

Most parents are keen to help their adult children, but at what price?

Is BoMaD ruining your retirement?

There’s a lot of expert opinion about the so-called BoMaD – Bank of Mum and Dad – but few commentators have bothered to analyse what it does to the retirement income and savings of retirees.

First though, check out this video on www.domain.com.au where a smiling millennial tells his peer group how to save up to $30,000 a year at the Hotel of Mum and Dad (HoMaD). Fabulous savings for the young man in just 12 months!

But let’s look more closely at the BoMaD. What is a BoMaD and why should you care? What will hosting this handsome young guy, on the family room sofa, mean for your future income?

The BoMaD is the fifth largest lending institution in Australia, after the Big Four banks and just ahead of ING, Suncorp and Bendigo Bank, and is estimated to be lending $65 billion per annum, according to a Mozo survey in September last year. That’s right, $65 billion is being transferred from the pockets of Australian mums and dads to their adult children to help them buy a house.

If you are over 50 and have adult children still living with you, it’s time to pay attention.

While children are no doubt lovable, they can also be very expensive – particularly when it comes to reducing your retirement income. And the impact is not just on the headline fact of parents lending grown-up children money to buy property.

There is a quieter, more insidious erosion of retirement savings and income which occurs when adult children live at home for extended periods without contributing to household expenses. This is a less spectacular, difficult-to-measure version of the BoMaD. And it’s not a loan, but a gift!

In YourLifeChoices’ most recent 2018 Retirement Matters survey, we asked our 230,000 55 to 75-year-old members whether assisting younger family members was eroding their retirement savings.

Here is what we learnt:

  • 17 per cent of respondents still have adult children living at home
  • of these, only 58 per cent are receiving contributions to household expenses
  • of those respondents with adult children at home, 32 per cent believe their retirement income is reduced by this arrangement
  • the median amount respondents projected they were losing per annum was $10,000, within a range of $5000 to $50,000

So, what does this mean for you and your retirement? This is tricky emotional territory.

As reported above, most parents are very relaxed about long-term cohabitation with their adult kids. The extended family can be a traditional source of strength, support, love and fun. There’s a lot to like about this way of living, and it really is the very basis of community.

But financially, it can be an extremely lopsided arrangement. The great ‘risk shift’ of retirement income, as identified by American academic Jacob Hacker in 2006, suggests that we are all basically on our own when it comes to creating a retirement nest egg and managing it successfully.

What is often overlooked is money foregone, and this is where a BoMaD can kill your current and future prospects. As we are well aware, retirement has fast become a user-pays system, exacerbated by the increasing need for personal income to cover both health and aged care.

So what can you do if you love having your adult children living at home, but fear this is having a negative impact on your finances?

You could start by recognising that family comes first, and if you are happy to have them at home, then that is where they belong. But make sure everyone is paying their way.

Think back to your early days of share houses and flatmates. There are mutual costs which include:

  • mortgage repayments and council rates
  • energy and water bills
  • communication: internet, movie streaming, subscriptions, and so on
  • home maintenance and repairs
  • cleaning
  • gardening
  • insurances
  • food and groceries.

When you stop and itemise the expenses, you realise that it costs a lot to run a home, even one which is fully owned. So create a spreadsheet with all household expenses listed, total it and divide it equally by all adults aged 21 and over. Set up a new bank account to be managed by the home owner, or whoever’s name is on the lease if you are renting.

Request all ‘guests’ organise an automatic payment from their own bank account into the household expenses account, equalling their share of these expenses, on the first of the month, every month.

When sufficient money is collected, organise for automatic payments of all household bills on their due date, and a payment covering ‘general monies’ (i.e., money for consumables, such as food and other supermarket items) to be made monthly into the homeowner’s account to cover these extra, often unnoticed, expenses.

This will hopefully remove all potential arguments and ensure that a fair share of the expenses is paid by all, as painlessly as possible.

It may sound like an overly formal system, but rent-free kids eating you out of house and home is hardly the answer, either. Yes, you love them dearly, but you also have to plan for your next 20 or 30 years of paying bills, perhaps when your health is far less robust than theirs.

YourLifeChoices’ September Retirement Affordability Index reports that it costs an average couple on a full or part Age Pension, living in their own home, about $42,995 per annum to cover all expenses. If these costs are higher because you are accommodating your grown-up kids, it’s up to you to ensure you are not digging into your savings to support them forever.

At the very least, it is worth thinking about, isn’t it?

This is an edited version of an article first published on Cuffelinks.

What about you? Are you a BoMad or running a HoMad? Is this harming your retirement income? What’s your story?

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    COMMENTS

    To make a comment, please register or login
    Cowboy Jim
    25th Oct 2018
    11:26am
    Confess that I got a housing loan from my Dad 40 years ago, $20'000 was quite a bit of money then. I was offered the loan and I paid every cent back over 4 years and he had it all back at age 59. Was brought up paying my share; since I started work at 16 a certain amount had to be given to Mum for the household and at 20 I left the place and made my own way. Today's young are a bit too pampered me thinks - living for nix at home with Mum and Dad and driving new cars. Bought my first ever brand new car last year at age 69, before they were all 'pre-loved' models. Still good cars just not new.
    Old Geezer
    25th Oct 2018
    11:35am
    I seem to be the bank for deposits not withdrawals at the moment.
    Anonymous
    30th Oct 2018
    6:26am
    Yet ano9ther contradiction of past claims, and more evidence that you are not qualified to speak as you do here - but among the arrogant fortunate who simply cannot recognize that others are not as lucky.
    Sundays
    25th Oct 2018
    11:50am
    Some parents are their own worst enemy. They often think the kids will be able to save for a start in life. Too often however, the kids just spend and never learn responsibility. There are also adult children who don’t live at home, but see their parents nest egg as something they should have a share in now. You could call it elder abuse, but it’s more subtle.
    Rosret
    25th Oct 2018
    11:53am
    Nope. Its the greatest gift you can give to your children and to yourself to know they are safe and cared for in a chaotic, greedy era.
    You don't build a dynasty on being selfish.
    I can remember when
    25th Oct 2018
    12:01pm
    Bravo
    leek
    25th Oct 2018
    12:03pm
    my sentiments exactly. see my post.
    Old Geezer
    25th Oct 2018
    12:04pm
    The greatest gift you can give your kids is how to look after themselves. If they are borrowing money form you then you have failed.
    KSS
    25th Oct 2018
    12:41pm
    The greatest gift from a parent to their child is that they become independent adults and don't remain dependent children!
    I can remember when
    25th Oct 2018
    12:01pm
    Allowing for inflation, a home today in the same area costs 50% more than what our current house did, and a whopping 400% more than the first home we bought.

    I had a free uni education - my kids are paying back tens of thousands of dollars for theirs.

    Against that, the cost of pretty much everything else has come down enormously (a new 51cm TV in 1981 cost the equivalent of $2700. A $20k VW Golf today cost the equivalent of $70k back in 1975).

    So those under 35 can afford so much more new stuff than my generation, but not so much houses and education eats up the house deposit.In other words don't judge younger people because they wear new clothes and have new stuff.

    When our kids were born we started putting money away so they could get a decent first car (safe and reliable) and to help with a house deposit. Old cars are unsafe and cost more in repairs in the long run. I'm happy to pay the small amount for food it costs to keep one of them at home still.

    My kids didn't decide to be born and I'm happy to help them financially because there's enough pressure in life these days without being poor like I was back then.
    Anonymous
    30th Oct 2018
    6:33am
    Interesting comment, I can remember. A house equivalent to my first home, in the same area, cost about HALF what I paid if you assess the cost as a proportion of the average wage. Someone doing the job I was doing back then would have to work 1/3rd of the years I had to work to pay for it.

    I was forced out of school at age 15 by economic circumstances. Don't know of ANY family who experiences that hardship today.

    Clothing, linen, household essentials, cars, electrical appliances, furniture... EVERYTHING is way cheaper than it was when I was struggling to buy it, and interest rates are a tiny fraction of what we paid.

    I honestly can't find a young family that is struggling through no fault of their own.

    That said, I've helped my kids financially. And maybe I should have helped them a lot more. It seems those who hand out to their kids 5 years before qualifying for a pension are richly rewarded under our absurd pension system, but if you dare to save it for your own old age, you are richly screwed.
    leek
    25th Oct 2018
    12:02pm
    The kids today need help. The average house in a lot of areas of melbourne are edging towards the $1m mark. Salaries are not keeping up with that. And if the kids are renting, the rents are so high that they struggle to make ends meet. I hit the jackpot in finding a studio apartment for my daughter in Oakleigh for $139k mid 2016. It is now worth over $200k- for basically 1 room. I paid outright for her to have the flat and said that this will be the deposit for her to buy a house later in life, and I want her to concentrate on her uni studies. She has exceeded my expectations with Uni and just an exam away from being Offered an "Honours" year(top 30% of students). I told her that I am giving whilst I can now. I have had my chances in life, and want her to succeed now. My daughter and kids like her are our future, our countries future and we need to support our kids and not be misers with our money. I have enough for my future(I live modestly-except for going on cruises). Our country is getting poorer and poorer thanks to the rent/houses.
    Anonymous
    30th Oct 2018
    10:42am
    Average house in Melbourne costs close to $1 mil? How many years' wages is that on an average wage? I'll bet it's LESS than in the early 1970s. And interest rates back then were double what they are now and rising. Furniture, clothing, appliances, linen, kitchenware, blankets, cars... EVERYTHING was way more expensive back then. And no childcare subsidies!

    So much BS about the struggling young and housing prices - sorry! I could no more afford a house in any city than fly to the moon! Houses in country areas are still very affordable - and also in many outer suburbs. Good for your daughter doing so well, and lucky you to be able to help her... and yes, our kids are our future, but I'm fed up with the attitude that retirees are fair game to strip of their life savings and plunge into hardship because the younger generation is ''doing it tough''. It's CRAP. They are NOT. (Some, of course. Some always have and always will. But overall, it's WAY WAY WAY easier now than for my generation - unless you were among the silver-spooners.)
    Old Man
    25th Oct 2018
    12:11pm
    The short answer is No. We spent a lot of money having our children educated, as did almost everybody else, and guided them into careers that we felt suited them. They have remained in those professions and are doing OK. Before giving an opinion on whether it is a good or bad thing to become your child's banker, I would need to see more detail.
    leek
    25th Oct 2018
    12:48pm
    each child is different. the child I bought the flat for understands the sacrifice I have made for her. And now understand the enormity of what I have done for her. she is also a person that does charity work and is not a selfish person. her long term goals are to help the the poorer people in our society. So I know helping her is ultimately helping our Society. My other child only thinks of herself, wears designer clothes etc. I haven't bought a flat for her, but am helping her in different ways.
    KB
    25th Oct 2018
    1:05pm
    My daughter lives with me and pas a contribution to household expenses. Has saved a lot of money for a house deposit. Reality is that people need a larger deposit for even a cheap house which my daughter is aiming for.
    Cheezil61
    25th Oct 2018
    1:21pm
    Yes one kid & partner live with me. No mention in this article that among other reasons is that it is hard for thrm to get by in this country of big business getting looked after by our greedy government & workers wages & unemployment incomes reducing/not keeping up with living costs/expenses (& mine both work). They also contribute to the costs & the chores (also no mention in the article how much money they may be saving us in expensive home maintenance & car repairs, etc when they help fix things i am unable to fix & help with cooking & cleaning, mowing, etc etc. I think what i help them with in not spending too much on wasted/dead rent money is balanced out by the $ they save me in return & the nice meals (paid for by them i might add- after my 12hr shifts - day & nightshifts this is nice comfort/trade-off). Overlooked that in article huh?
    KB
    25th Oct 2018
    2:10pm
    Yes it works out well for . My daughter does chores. It is pointless renting which is dead money when they can stay home and pay contribution to living costs and help with chores.This is her home as long as she needs
    Paddington
    25th Oct 2018
    9:30pm
    What have you got if not family? If everyone took care of each other like in some cultures, we would have far less homelessness and neglect of vulnerable people. If you are in a position to help your children then it can be a two way arrangement. It is just another form of house sharing. Aging parents would have some caring down by their children. Others could help by giving time to their offspring to save for a home. It is really up to the people concerned to sort out how they want to arrange their home. It could work for some but not others as well. Loneliness is another concern. It could be the single parent who is lonely or a middle aged offspring who returns home as they are by themselves. Life changes and evolves for everyone.
    Cheezil61
    29th Oct 2018
    8:04am
    Agree, family is important & we should all pull together as in othercultures as you mentioned. It doesn't really cost me any extra to have these kids with me til they get on their feet & i may need them to care for me in later life. Silly article really!

    30th Oct 2018
    6:34am
    The article fails to mention that Colonel C/link richly rewards those who help their kids out 5 years before qualifying for an OAP, while punishing harshly anyone who hangs on to their savings for their own expenses in old age. Seems the best strategy is to give it to the kids and hope like hell they will give it back when you need it!
    leek
    30th Oct 2018
    8:22am
    yep I am getting closer to the 5 year rule, that is why I am helping mine out now as well. And you said hope they can help me later. But my plan is to have enough for myself as well. But i won't have a huge amount left.


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