The Bank of Mum & Dad | Arrow Insights | Ep 12
In this episode of Arrow Insights, Ryan Synnot and Peter Leggett explore the growing role of the Bank of Mum and Dad—a phenomenon where parents assist their children in buying property. With housing affordability becoming an increasing challenge, more families are asking: Should we help our children get into the market earlier? What are the financial and legal risks? And how can we ensure fairness among siblings?
Ryan and Peter discuss the benefits and challenges of parental financial support, from reducing mortgage costs and securing better living locations to potential family tensions and legal pitfalls. They also share practical tips for structuring assistance wisely and ensuring it doesn’t compromise parents’ financial security. If you're considering helping your children buy a home, this episode offers valuable insights you won’t want to miss.
Transcript:
Introduction
Ryan Synnot: Welcome to another edition of Arrow Insights. I'm Ryan Synnot, Associate Director at Arrow Private Wealth. Joining me today is Peter Leggett, Executive Chairman and Chief Investment Officer.
Today, we're diving into a very interesting topic—the Bank of Mum and Dad, something that has become increasingly prevalent over the past few decades.
Peter, let's get straight into it. What is the Bank of Mum and Dad, and why has it become more popular in recent years?
Peter Leggett: Thanks, Ryan. The Bank of Mum and Dad refers to parents stepping in to assist their children financially. This could be through gifting money, lending funds, or helping with a home deposit. Over the past decade, we've seen a dramatic increase in parental financial assistance.
The Growth of Parental Financial Assistance
Peter Leggett: The Productivity Commission reports that the number of parents assisting their children financially has doubled compared to 20 years ago.
If the Bank of Mum and Dad were an actual financial institution in Australia, it would rank between the 5th and 9th largest bank in the country. In terms of value, parental contributions are worth approximately $35 billion annually, highlighting its significance in the housing market.
Why Parents Choose to Help
Ryan Synnot: Supporting children in buying property is a substantial decision for parents. From their perspective, what are the key benefits?
Peter Leggett: Apart from helping children enter the property market earlier, financial support from parents can:
Reduce or eliminate mortgage insurance costs.
Provide security and stability by enabling children to live in better locations.
Support generational wealth transfer while parents are still alive to see its benefits (living legacy).
In my own experience, my wife and I have helped two of our children buy homes and plan to assist the others as well. This gives us peace of mind, knowing they can afford to live in well-connected suburbs rather than being forced into distant areas with less infrastructure.
Challenges & Risks
Ryan Synnot: While there are clear benefits, what challenges do parents face when acting as the Bank of Mum and Dad?
Peter Leggett: There are several key risks:
Impact on Parental Finances – Parents must ensure that their generosity does not compromise their own financial security or retirement plans.
Lack of Clarity in Agreements – Many parents don’t document whether the money is a gift or a loan, leading to confusion and potential disputes.
Family Tensions – Sibling rivalry can emerge if one child receives financial assistance while others do not. For example, I recently advised a family where the parents helped their daughter with a $60,000 loan. When their son learned about it, he demanded equal support, creating tension within the family.
Legal & Relationship Risks – If a child gets divorced, parental contributions can become entangled in family law disputes. Without a formal agreement, financial support intended for a child could end up with an ex-partner.
The Financial Impact of Parental Assistance
Ryan Synnot: A major benefit of parental assistance is reducing the outstanding loan balance. Over time, this can lead to substantial financial savings. Can you elaborate on this?
Peter Leggett: Absolutely. If parents contribute an additional $100,000 to a child's home deposit on a $900,000 loan, the long-term interest savings over a 30-year mortgage exceed $125,000.
For my wife and me, this was a key reason we chose to assist our children. Rather than waiting until we pass away, we prefer to help them now when it can make the most difference.
Top 3 Tips for Parents Considering This Approach
For parents thinking about becoming part of the Bank of Mum and Dad, here are my top three recommendations:
Ensure Your Own Financial Security – Before helping your children, make sure your own financial position is strong enough to support it without jeopardizing your future.
Document Everything Properly – Clearly define whether the money is a gift or a loan, and ensure all children understand the arrangement to avoid future conflicts.
Seek Professional Advice – Tax and legal implications can arise, so consulting financial and legal experts is crucial to structuring assistance appropriately.
Conclusion
Ryan Synnot: Thanks, Peter, for those insights.
If you are considering becoming part of the Bank of Mum and Dad, we encourage you to discuss your options with your adviser. If you're not currently a client of Arrow Private Wealth, feel free to contact us via our website.
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Any general advice on this page does not take account of your personal objectives, financial situation and needs, and because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Information contained on this page was correct at the time of posting.