During the Global Financial Crisis many New Zealanders who lost their jobs approached their elderly parents for financial assistance.
They sought help to repay their credit cards, hire purchase and home loans, but it was their near-retired parents who suffered in the long-term and were never repaid even after their kids found new jobs.
Westpac Financial Advisor Pam Cussen experienced this first-hand with many of her customers in 2008 and warns the same thing might happen now that Covid-19 is causing a rise in unemployment.
“When parents are approached for assistance, it is a knee jerk reaction to say ‘yes, of course we will help’, after all they are your children, albeit they are adults.
“This saw retirement plans in 2008 change dramatically for the parents and their once anticipated fun-filled years were now back to having a tight budget.
“The children found new jobs, never repaid the debt and were now living in a more comfortable position.
“They treated the advance of these funds like an early inheritance advance.
“They often upgraded homes and cars and commenced travelling again,” Cussen says.
Cussen advises that any parents put in this situation ask some serious questions and discuss how it will affect their retirement plans and superannuation income.
The financial advisor recommends that parents ask their children these questions:
- Have you approached your bank to discuss your finances? I understand many banks can assist with mortgage repayment deferrals or work with their customer solutions team to offer help.
- You may be able to extend the term of your loan with your bank, amalgamate your credit cards and hire purchase in this debt.
- Do you have a work Superannuation scheme that you can call on to repay this debt or to assist with mortgage payments?
- Can you approach your KiwiSaver provider to assist with home loan repayments and paying your hire purchase and credit cards?
- Could you or your partner take a holiday from KiwiSaver obligations during this time period to release more household income?
- Do you qualify for any WINZ benefits or family tax credits now?
- Do you have household items that are no longer used that could be sold on Trademe?
- If you have two vehicles, can you reduce to one and use public transport instead?
- Discuss their budget with them. Are their things that can be stripped, like gym memberships, purchased lunches and club memberships?
- Are you able to find part time work or is your partner able to extend their hours, to stretch the budget?
- Can you take in a border for rental income?
- In the worst-case scenario, could you rent your house and live with family (me) over the short to medium term until you get back on your feet?
- When you do find a new job, how do you plan on repaying me?
- I would like a payment schedule or refinancing with your bank and what is the time schedule around this?
“It is better to assist your children with monthly payments if you really have to, rather than a lump sum payment for their mortgage, as this will help keep your funds intact and can be stopped as soon as they have secured employment again.
“As you have other children, it is not fair to treat them unequally, so this debt needs to be repaid or recognised in your Will, as part of their share of inheritance.
“Discuss this with your legal representative,” Cussen says.
The financial advisor also recommends telling your children that another financial catastrophe will occur in their lifetime and is therefore important to put funds aside for that next rainy day.
“My advice is to think twice and ask questions before making a decision to help.
“It is your retirement you have worked hard for and you need to protect your funds to ensure all those years you have worked will be rewarded,” she says.
Please note this is class advice and not tailored to your personal situation. Pam Cussen’s Primary & Secondary Disclosure Document are available on request.