The number one money question Paul Clitheroe gets asked

For more than 40 years I've been answering people's money questions. They always interest me, and they also say a lot about how we are handling and planning financial issues.  But the shift in the nature of questions over time has been dramatic.  

In the 1980s and '90s, the questions were mostly along the lines of "Should I buy shares?" or "Do I buy property or shares?". Don't forget, in the 1980s only around 3% of Australians owned shares, and there was no compulsory super as we know it today.   

By 2000, the questions shifted. They became more strategic. Issues like "Do I have enough to retire on?" and matters around super were firmly on our collective radar  

In the past decade, while I still get plenty on one of the most important questions of all, "Will I have enough to stop work?", the questions involve more detail.

More recently, I've seen another big change. These days, I receive a steady stream of questions regarding the transition of money to our kids and helping grandkids. 

It's natural for parents to want to give their children and grandkids a financial head start. And there's a variety of ways to lend a hand. I do have one golden rule though - ensure your own finances are secure before you help the kids. 

With this in mind, let's look at a few options. 

Gifting money to your children 

Australians are living longer, and most people don't receive an inheritance until they are in their 50s or 60s. By that stage, quite a few of life's big financial challenges are behind us. This calls for changes to the way we view the transition of money to our kids. 

If you have the money available, a cash gift (call it an early inheritance if you like) can help adult children get started on the property ladder or achieve another worthwhile goal. You just need to be confident they won't blow the money.

Be aware, if you receive the age pension there is a gifting limit of $10,000 in a financial year, with a $30,000 limit over five financial years. Anything you give away above these limits is calculated as being part of your assets and the income test applies. 

Helping kids save on rent 

If you don't have much spare cash, letting adult children live at home while they save for a place of their own can make a valuable difference. 

While I would certainly put a few rules in place around this, it can help your kids save tens of thousands of dollars each year in rent. 

Acting as guarantor for a home loan 

Guaranteeing an adult child's home loan may help them into the market but it's a step that calls for considerable care. If your son or daughter cannot (or chooses not to) keep up the loan repayments, the lender can turn to you, as guarantor, to make good with the loan.  

'Family pledge' loans are available that let parents nominate how much of the loan they are willing to guarantee, rather than the full balance. It's usually a condition of these loans that guarantors seek independent legal advice. This should be a red flag of the scale of commitment you are taking on. 

Starting a pint-sized portfolio 

I'm all for having relaxed conversations about money with kids but there's no point trying to shove lessons about investing down their throats. My kids grew up while I was hosting the Money Show on Channel 9. Yet they had zero interest in money, and when young, to my amusement, they used to call me "the most boring person on TV".   

But interestingly, as adults they are good with money. Like cleaning your teeth, good habits tend to stick, and that includes the effort you put into talking to your kids about money. 

What you can do is start a portfolio of shares and exchange-traded funds (ETFs) for your children or grandchildren, then add to it regularly.  

My parents did this at an early stage for my sister and I. Mum and Dad would occasionally mention the shares, and by my late teens I started to become interested. By my 20s, the portfolio had grown to the point where my wife Vicki and I were able to use the money as a deposit on our first home. We were on our way, all thanks to my parents' foresight. How good is that?  

The key to investing for children or grandchildren is regular investment into quality assets, but in a fund with very low fees. This of course is InvestSMART's strategy, and better still, the hard work is done for you, meaning you get to spend more time with the kids rather than chasing the share market.  

What to avoid 

Giving your kids a financial helping hand can give them a head start that lasts a lifetime.  

What you don't want to do is find yourself constantly handing cash out to your adult children. This is an aspect of family life that can call for considerable tact.  

If you think about it though, parents have a right to a comfortable retirement and, to be quite frank, you are doing the kids no favours by acting as their money tree if you are just subsidising their lifestyle.