When should parents close the 'bank of mum and dad'?

Frank Conway of MoneyWhizz spoke to Bobby about a tricky question many parents will have to deal with...

When should parents close the 'bank of mum and dad'?

Picture by: Brian Lawless/PA Archive/PA Images

Many parents will eventually find themselves forced to answer a difficult question - is it time to close the bank of mum and dad?

The answers will be very different from person to person, even allowing for variances in financial positions.

Some will adopt a hardline approach - effectively cutting off the cash flow to their kids once they leave home (or even before that). Others parents will go much softer, and never fail to offer a helping hand when needed (and even when it's not needed).

But what about those trying to find the balance between these two positions? When is it time to say 'no'?

Frank Conway of MoneyWhizz spoke to Bobby Kerr about the issue, and offered some advice to parents attempting to deal with it.

Frank observed: "I would say at a very young stage one of the things parent can try and do - and this extends into schools as well - is teaching the value of money.

"When we talk about the bank of mum and dad, one of the dangers I think that people associate with that is there's no turn off point...it's a crutch out there. It should be a tool really that helps kids later in life."

For parents and children alike, going to college is the first time many young people are no longer entirely 'dependents' - they have a significant degree of freedom, responsibility and autonomy. Frank suggests that, as a result, this is when many can learn 'all-encompassing' ideas about money and concepts such as credit and debt.

Especially in modern Ireland, however, it is not until young people enter full-time employment that they will be able to live on their own earnings - but even then, the financial support of parents can be a tricky area.

Frank highlighted buying a house as something many people in their 30s and 40s will find themselves considering. He suggested that while it is not and should not be the only way of building wealth, it is one area where parents will often help their children - and a good opportunity to reach a mutual agreement over a financial relationship.

Is the money being wasted?

Frank also explained that what children are using money for is a point parents should consider when lending or giving their children money.

"If that child - or they and their partner - want to buy a house, I would say perhaps that is a good thing," he said. "The risk always is that kids are being shaped by their peers as well.

"The question ultimately is what is the money being used for. Is it used simply for day-to-day lifestyle, because they have an expectation greater than what they earn? Is it being wasted? Are they displaying their wealth, are they driving their wealth?

"That's a waste of money. And I think parents would want to say 'I think that's a bad idea'".

He said in such cases it's important that there's a 'no' from parents - and leaving any available money through formal, tax-efficient measures such as inheritance may be the way forward rather than immediate 'handouts'.

On the subject of work ethic, Frank said part-time work is a way of easing teenagers into learning the value of money - but the process should begin much earlier than that.

He observed: "It's often very interesting when you take a young child from aged seven onwards - once they take possession of money, they understand the value of it and respect it.

"But I think once they begin to see how quickly money disappears, it changes some people. [Others] need to be taught this in a very simple, constructive way.

"I think this is where school perhaps need to be more involved, but parents need to help in teaching this [even if] not all parents will have the detailed knowledge of more complicated aspects," Frank concluded.