Giving your kids an allowance could save your retirement

If you think your kids are late leaving the nest, you're not alone: more than a fifth of Australians aged 25 to 29 still live with their parents. Even in the 30 to 40 age bracket, one in ten still mooch off mum and dad. 

It's a delicate scale. Too little financial support or cutting it off too early can send your kids down a bad path, where relationships are strained or they're forced to neglect their education or take on credit card debt to make ends meet. 

Too much support and you wind up with a different set of problems: young adults who don't know the value of money, and the risk that you undermine your own retirement by not contributing as much to your Super fund. 

Excessive support often creates a toxic situation: children can get hooked on 'parental welfare payments' to maintain their lifestyle, while at the same time eroding your ability to provide for them - and yourself - when you're no longer able to work. 

Getting your kids to financial independence as soon as possible is good for them and your retirement account. Here are a few tips to set the right course: 

1. Give your kids an allowance. Whether it's a weekly allowance for canteen lunches, or a Westfield gift card for buying back-to-school supplies, giving your kids some control of spending teaches them the value of money and encourages them to seek more bang for their buck. You can supercharge the value-seeking mindset by letting them keep any money left over. An allowance may seem like an unnecessary expense, but the odds are you'll be paying for the school books anyway. Giving kids control within boundaries, however, teaches self-reliance, so they're hopefully less likely to depend on handouts when they're older. 

2. Involve kids in everyday financial decisions. Get them to calculate the restaurant bill before it arrives or let them work out a tip. At an amusement park, you could ask your kids to figure out whether buying individual or family tickets offers the better deal. If you have to book flights, make it a competition for who can find the lowest fare. This can eventually be taken to more advanced levels, like deciding between different savings accounts or mortgages given a range of interest rates and fees. ​​​​​​

3. Lend them money. A 2017 poll of 1,000 US adults with children over 18 found that 52% had helped their children pay off debts - money that could otherwise be padding their retirement account. Shopping centres are a great place to teach kids about debt - if they want a pair of shoes, consider lending them the money at a defined rate of interest and payback period. The idea of charging your 12-year-old interest might seem harsh, but a few early lessons about debt could save them some expensive lessons later on. A word of warning, though: keep the lending to small sums. Large financial debts to parents can mess with a child's psychology or fuel an unsustainable lifestyle. 

4. Encourage them to get a job (or not). This one has good arguments and equally good counter-arguments. On the one hand, experience gained in getting and holding down a job can be invaluable. Add in a savings plan - where your kids are encouraged to put away, say, half their salary - can also set them up financially when it comes to moving out of home, going to uni etc. On the other hand, jobs can seriously distract children from school - I've seen it first hand, where kids get hooked on the flood of pocket money and so want to work instead of study. This could prevent them from getting into the best universities and a higher paying job later on, which increases the risk they will need your financial support. There's an argument for supporting your kids right through school so they can focus on their academic results, or at least pairing thier allowance to the grades they get. It's a tough call and probably needs to be tailored to your child. 

5. Charge them rent. Another controversial topic. Letting your kids stay rent-free lets them focus on education and can give them a head start in life, especially if they have an income and are focused on saving for productive assets, like shares or property. A potentially better set-up is to charge rent, even a nominal sum, but secretly stash the money away and return it to them when they move out or want to buy a home. This both teaches them about real-world expenses and budgeting, while also giving them a surprise endowment that can be put towards a home deposit or a portfolio of stocks. 

If you can afford to support your kids financially into their 20s or beyond, great. There's nothing wrong with splurging on your kids, but there's a difference between splurging when you want to and splurging because you have to. If you want to provide long-term financial support, the trick is to do so mindfully with attention to what lessons you're teaching, and to keep your own retirement a priority. You'll be better off - and so will the youngsters.