Diana Clement: Why you shouldn’t help your children financially

Teaching children early to stand on their own two feet financially is one of the best ways to help them learn to be financially stable.

OPINION:

“Adulting is expensive”, my university student son messaged me after his first two weeks of flatting. I sit firmly outside the camp that thinks parents should pay for uni. Learning the hard way what life costs can be a very good lesson at a young age.

Teaching children early to stand on their own two feet financially is one of the best ways to help them learn to be financially stable. Make them pay uni and hall fees, and don’t hand them cash. Working part-time, budgeting and managing a student loan are all good for long-term financial smarts.

I’m not alone. I was having a breakfast meeting with the chief executive of a large corporate a couple of years prior to the pandemic, and wondered why the young waiter kept grinning in the direction of our table. It wasn’t until the teenager finally said, “Here’s your bill, Dad”, that it fell into place. The 17-year-old was getting up at 5am several mornings a week to save for uni. Dad, it turned out, felt strongly that his children needed to pay for their own uni and make their own way in life. I’m in the same camp.

For the record, his children, like my children, do, of course, have all the advantages of growing up in financially comfortable homes that didn’t lurch from one financial crisis to the next. They have role models of parents who have made their own way in life. What’s more, children from comfortable backgrounds will know innately that if they had a real emergency, family could help them out.

It’s for these reasons I think it’s more important for young people who have had it easy financially through childhood to learn to ‘adult’ on their own.

In my social group, it’s often assumed that parents will help their children through uni and ultimately fund some or all of the deposit for a home. Raised eyebrows are the reaction whenever I suggest otherwise.

Paying for uni, buying them a car and saving them from everyday expenses may be hindering their future rather than helping it. Cutting off the financial umbilical cord early is not a bad thing. Backing up the decision to close down the Bank of Mum and Dad with reason and open discussions helps them forge their own path in the world.

Don’t be mistaken. Plenty of students pay their own way, and it’s not at all uncommon for young people to buy first homes without parental help. Just look at the numbers. Research by Consumer in 2022 found that 48 per cent of parents have given or are giving financial help to their children for the purchase of a property. That means the other 52 per cent do it on their own, which is a percentage worth noting.

First-home buyers make up more than a quarter of all purchases. So, young people can buy homes without help. For the record, there are more than 4,000 properties for sale in Auckland alone within the KiwiSaver First Home Grant cap, and 700 below $500,000.

Again, a proviso is that children from better-off backgrounds have probably built up savings from Christmas and birthday money, parents chipping into their KiwiSaver or similar funds and generous grandparents.

That isn’t the case always for children from lower socio-economic backgrounds, because of a lack of money and/or guidance. It’s not as easy for them.

The very worst adult children to lend money to are those who haven’t saved a bean. If they can’t manage to start putting a small amount of money aside, then they’re probably not suitable to be homeowners anyway. Chances are, they’ll make poor financial choices in the future.

Finally, one worry that most people don’t think about when parenting is the spectre of financial elder abuse later in life. Children who don’t learn to stand on their own two feet are often the ones who become boomerang kids, living off mum and dad, and as they get older, treating them as an ATM. Financial elder abuse is rife in New Zealand. Just ask around and you’ll soon hear some awful examples. Raising financially independent children can lessen the risk of falling victim to this behaviour when you become more vulnerable.