Whether it’s weddings, birthdays or big purchases such as a car or a house, the “Bank of Mum and Dad” is increasingly where the financial help comes from. Our recent survey has revealed that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely recipients. If you’re getting ready to have that difficult money conversation with mum and dad, you’re not alone.
However, receiving cash gifts from parents doesn’t have to be embarrassing or stressful. Here is what to keep in mind to make the whole process as smooth as possible, for both you and your parents.
You’re no doubt relieved if you know that there’s a cash gift from relatives coming your way. But you might also be secretly dreading the preceding conversation. Understanding why you’re not looking forward to it can actually help the conversation move forward – often the issue is imagined rather than real! Here are the most common reasons why receiving cash gifts can make you feel uncomfortable:
Money and politics are carefully avoided at family dinners and most other social settings, so most of us don’t have enough experience to broach the subject. Remember that your parents might feel the same way, so it’s okay to feel a bit uneasy. Money doesn’t need to be a negative or taboo topic – everyone needs and uses money after all!
There’s a reason why we have the saying “money and family don’t mix”. If you’ve received cash gifts from parents before and things didn’t go smoothly, make sure you clear out any leftover issues first. Sitting down face-to-face and having an open, honest conversation is the best way to move forward.
Money is strongly connected to our status and how we feel about our independence or worth. Remember you’re not the odd one out and receiving a gift or loan from a family member is very common. It’s also important to remember that the gift comes from a place of love and wanting the best for you.
Children often worry that parents can be overly zealous in trying to help and forget that they have their own financial needs to take care of. Involving a third party such as a financial adviser can be beneficial for everyone involved. You’ll know that your parents are protected and they’ll know they’re giving you the best possible financial assistance.
Whether you’re getting prepared to ask for the cash gift or your parents are already thinking of giving you one, here are a few things you can do before and during the conversation so you and your family can make the most out of it:
Research is incredibly important, so make sure you are prepared well in advance however you intend to spend the money. Know how much money you require and whether you need to rely on your parents for future expenses as well. Giving them the full picture beforehand will help them plan their finances better and give you the support you need.
Clarify, clarify, clarify. Is it a loan or a gift? Are you being given a blank cheque or do conditions apply? Will your parents have part ownership of the property or possession you’re trying to buy? It might seem like you’re conducting business instead of talking to mum and dad, but getting the wrong idea about what it is they’re offering you will make it much more difficult further down the line. If you’re not sure, ask for clarification at every step.
Receiving a cash gift from a relative off the record is fine for small gifts, but can spell trouble for more substantial ones. It’s always a good idea to outline the main points of the conversation in writing, especially if there are conditions to be met or if the gift is meant to be paid back later.
If you’re the one raising the topic with your parents first, give them plenty of time to figure out what is the best way to assist you financially. Parents may also want to know how you’re spending the money and perhaps have an input in that decision. Move the conversation forward by being patient and trying to put yourself in their shoes.
You might have to sell the house your parents helped you pay for, or they may experience financial difficulties later on in life. Even falling out with your family is a possibility. Make sure you discuss what should happen in these unfortunate circumstances before you receive a cash gift from parents.
Did you know that you may have to pay tax on the gift from your parents? Make yourself familiar with Inheritance Tax rules and wedding gift taxes to avoid unpleasant tax bills in the future.