Hand up vs Handout

Providing hand outs to your adult children is not going to teach them the valuable lessons they need to stand on their own two feet. However, that’s not to say you can’t help them by providing a “hand up” alternative.

We’ve previously discussed the issues on hand outs in our “kids these days” blog, particularly how these are not only a detriment to your retirement savings plans but also to the adult children who become reliant on their parents to bail them out.

In the short-term, providing hand outs may seem like you're helping, but the reality is that you are solidifying bad financial habits and neglecting the opportunity to teach good ones.

This topic isn’t talking about your children who have started their apprenticeship or are currently studying in university, it’s about those who should be in a position to stand on their own two feet and look after themselves.

So, how do you help your adult children while building good financial habits?

By providing hand ups and not handouts.

I’m sure you’ve heard the old saying “Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime”.

What are some examples of these?

• To gift a deposit for a house is a perfect example of a handout.
  • Instead, an idea could be to act as guarantor to your children’s loan, only if they have made a fully considered decision and have saved the money they need over reasonable time to prove that they are able to make the loan repayments.
  • This not only proves to you that they are capable of getting a large loan for a house, but it also helps them to adjust their lifestyle habits to put money away for their goal.

• To buy a car for your child.
  • Instead try matching dollar for dollar (or a variation of this) the savings of your adult child to assist with paying. Those who have put the time and effort into saving for their car will appreciate it more than the one who received it as a gift.
  • Or providing a low to no interest loan to your children, with a clearly communicated repayment schedule and terms/penalties. Enforce the rules and ensure they are in a position to follow them.

• Paying for registrations, car insurance, car servicing, and/or phone bills.
  • These are expenses that all adults need to pay and are easy with proper budgeting.
  • If your adult child has the responsibility of owning a car/phone, then they should have the responsibility of looking after them.

• Funding a credit card for your adult child.
  • Just don’t do it.
  • This is a sure-fire way to instil some really bad financial habits. 

• Allowing your adult child to live at home without paying any board.
  • If you wish to help your child save for a financial goal (such as moving overseas) while allowing to them to stay at home, that is fine. But they should still be made to help pay for their own living expenses in the house.
  • As a parent you could discreetly save these board payments as funds to assist your children with their financial goals as money for a hand up (not a handout).

The above examples are only a small list of possible methods you could use; you may combine some of these or have other great ideas of providing hand ups. 

For some, it can be hard to resist slipping your money to your children to help ease their short-term pain. But, you just aren’t helping them.

If you are over the age of 50 and still providing handouts, you need to take a step back and realise that not only are you restricting your child's growth, but you could potentially be pushing your retirement back by years!

Think of better alternatives that help you both.