Debating whether to spend the kids’ inheritance

There’s a new way of thinking that has Aussies firmly divided. It’s called spending the kids’ inheritance (SKI) which means splashing out on travel, hobbies and living life, rather than saving and penny pinching so your children will have a tidy sum when you’re gone.

Some label this way of thinking as selfish. Others believe it’s their cash  and they’re entitled to spend it any way they choose.

Mandy Watson, 57, is an advocate  of the SKI philosophy – so much so that she’s set up a Facebook group where she posts on social media from far-flung, exotic destinations.

“I was writing a travel blog, and the domain ‘Spending the Kids Inheritance’ was available, so I scooped it up,” she says.

Mandy and husband Trevor, 64, have four kids between them.

“It’s not about spending it all – it’s about living as best we can,” Mandy says.

“We’ve worked hard, and the kids know the sacrifices we have made over the years. They’re all on board with what we are doing.”

With a few wise investments  along the way, Mandy says there will still be a nest egg when they’re gone for  their offspring.

As for today, Mandy and Trevor also spend up on sharing their love of travel with their family.

“We shouted the kids and grandkids a South Pacific cruise with two conditions: we all had to wear the same family T-shirt and meet up at night for dinner,” Mandy says.

“I asked one of our sons what his favourite part of the holiday was and he said the family dinners.

“It was like our family Christmas table, and on that 11-night cruise, we had 11 years’ worth of Christmases all in a row. It was wonderful.”

It is a balancing act to live the retirement you’ve always dreamed  of with having enough money to last  the distance.

But the reality is that when mum and dad fall off their perch, many Aussie kids are set to inherit their parents’ money and often sizeable assets.

Financial adviser Lachlan Money, from Stream Financial (yes, that’s his name) says we are looking at an unprecedented scenario.

“Those in the industry are talking about this being the largest transfer of wealth in history,” he says.

A 2024 report by Vanguard revealed that an expected $4.9 trillion will be passed down from the current baby boomer custodians in the next 10  to 15 years.

That’s big bickies.

The same report showed 10 per cent of baby boomers believe they should spend every cent before they pass away.

In the Gen Z cohort (those aged 18-27), it’s a very different story. More than 10 per cent believe retirees should be leaving as much as they can to their kids.

In the Millennial group (aged 28-42), 45 per cent believe money should be left to the kids if they can live comfortably.

In Gen X (aged 43-47), 44 per cent believe retirees should prioritise enjoying their hard-earned cash before leaving money to their children.

Baby boomers represent the first generation to have accumulated a nice chunk of superannuation, after the Superannuation Guarantee was introduced in 1992, when it was  made compulsory for employers to  add a superannuation contribution for their workers.

The housing boom that has seen prices of homes skyrocket over a generation has also meant many retirees are worth a quid or two. And if they downsize the family home in retirement, there’s even more cash in their pockets.

But here’s the rub. Retirees are  living a lot longer than previous generations – so their hard-earned cash has to go further.

In the middle of last century, the average lifespan for males was 66.5, and 71.5 for females, the Institute of Health and Welfare reports. Fast forward 70 years and the average lifespan of males has jumped to 81.3, and for females it’s 85.4.

We are living longer and living well with advancements in preventative health outcomes and more information geared towards positive and healthy ageing at our fingertips.

Lachlan says it is a vastly changing financial landscape these days.

“If we go back to the 1940s, most people on average didn’t reach the pension age,” he says.

“Now, we are generally living 18 years or so past when we are entitled to the aged pension.”

The conscious debate about SKI is fuelled by crippling housing prices, soaring cost of living, and higher education debts many retirees’ offspring are struggling to pay.

Mum-of-one Gaynor Williams, 62, took her son with her when she updated her will.

“He said to me, ‘This is hell awkward, mum, and I don’t want what you have when you go’. But I said to him, ‘I think you are going to need it’,” she says.

Whatever you decide to do with your savings and superannuation, it’s important to share with your adult children what your plans are, so they can take that into account when planning their own financial future.

Seventy-year-old Ian Harrison says that when his daughter couldn’t get a home loan because she had an outstanding university HELP debt, he decided to step in.

“House prices kept going up and up and she simply couldn’t afford the repayments on top of the HELP,” he says.

“Paying it out for her just seemed like the right thing to do.”

The hard truth is that many parents are worried that their kids might never realise the ‘Great Australian Dream’ of owning their own home.

In a 2020 report, the Australian Housing and Urban Research Institute says that almost half of today’s young Australians may not own property by the age of 54.

So, unless cashed-up retirees continue to watch their kids line the pockets of investors with rent money, they have a decision to make.

Lee Heseltine, 61, says giving the  kids a hand up doesn’t necessarily mean it’s a handout.

“The ‘bank of mum and dad’ has become so important for kids buying houses. We have helped both kids and they’ve paid back what we loaned them,” she says.

Her husband Bruce, 61, says they don’t plan on dolling out lots of money when they go, but plan to gift some money to the kids.

“The future for everyone is uncertain. We’re leaving the house to the kids,but may need the cash at some point for a nursing home,” he says.

Bruce’s children have a light-hearted dig at the couple, every time they’re off on a new adventure overseas.

“It’s very tongue in cheek, but they joke, ‘Hey, you are going on this trip and that trip – what’s left for us?’. We say, ‘Well, you’ll get the dog and the budgerigar,” Bruce laughs.

They know a couple who have just cashed out a cool $600,000 from their superannuation to buy their kids a house.

There are also those who believe handing over cash to their kids isn’t a good idea. They’ve worked hard all  their lives, so they are entitled to enjoy the spoils.

Many of Australia’s uber wealthy have instilled a ‘money doesn’t grow on trees’ philosophy in the next generation.

Former rugby league player Wes Maas is reportedly valued at $814 million, and told The Financial Review: “I want to make sure that my kids are hungry, because I’ve always been hungry. Then they get a sense of satisfaction or achievement when they achieve things.”

Lachlan says when working out your financial future, it’s important to look after your own needs.

“I say to clients, ‘Put your own life vest on first before helping others’. You don’t know what the future holds,” he says.

“You could decide on a loan with a formal arrangement in place, give them education bonds, or start the First Home Super Saver Scheme (FHSS) for your kids or grandkids (this allows you to make voluntary contributions towards their super. Concessional contributions are taxed at only 15 per cent, which is usually less than the marginal income tax rate. Assessable FHSS amounts also benefit from a 30 per cent FHSS tax offset).”

Before you retire, Lachlan says it’s always a good idea to seek professional guidance on how to manage your finances, moving forward: “You might have gone through your life without needing financial advice, but in retirement, you might not know the right questions to ask.

“Sometimes it is a big shock to my clients (that) we don’t have death taxes, but there can be taxes that apply to inheritances on superannuation funds.”