Mother's Day - Planning for your children's future

As a Mum there are ways you can both improve your own financial situation, and help your child better provide for their future.

But like many things involved with motherhood, it takes planning and hard work.

“Understanding your financial position now and the changes over coming months is a great starting point,” says Michael Tran, BT’s Technical Consultant.

“There’s also government assistance, insurance and eventually helping your children move out and maybe even working with them to buy their own home.”

The following guide celebrates all Mums by providing some hints on better ensuring their own, and their children’s, financial future. 

Childcare Subsidies

Mums (and families) may be eligible for Child Care Subsidy (CCS). CCS rates peak at 90% for families with a combined income of less than $80,000.

The CCS will reduce by 1% for each additional $5,000 of annual income. A Mum, or couple, with a combined income of $120,000 would receive a CCS percentage of 82%, and couples with a combined income of $300,000 would receive 46%. Those with a combined income of $530,000 or greater will not be eligible for the CCS.

The rules can be complex, so speaking to a financial adviser is a great starting point. 

Federal assistance for raising children

The federal government offers a Paid Parental Leave scheme, whereby a family can get up to 100 days (20 weeks) of paid leave that can be shared between parents. The most one parent in a couple can use is 90 days and each parent can take up to 10 days at the same time. There are rules, and exemptions, in the program.

The Family Tax benefit is a payment that helps with the cost of raising children. It is made up of two parts: Family Tax Benefit Part A and Part B. Part A is paid per-child, and the amount is based on the family’s circumstances. Part B is paid per family and gives extra help to single parents and some couple families with one main income¹.

Mums (and Dads) should consider researching what might apply to them, and then check in with a financial adviser about how it affects them and the best way to access the benefits.

Insurance

For Mums, understanding the intricacies of insurance policies can be financially beneficial. Insurance can be complicated and getting in touch with your financial adviser is a good starting point to understanding policies.

For example, most insurers do not treat maternity leave as unemployment, unless the insured has ceased work entirely with her employer.

Life and trauma cover are generally unaffected by periods of unpaid leave or exiting the workforce, as these cover types are not linked to employment.

However, some policies linked to employment might be affected by a change in a client’s work situation. For example, income protection policies can remain in force, but the applicable definition may vary. After the individual has been unemployed or on leave for 12 or more months, a claim may be assessed against her ability to perform any occupation.

Look into specific cover for stay-at-home parents
The cost of replacing someone to provide childcare, transportation, household cleaning and cooking, along with family management, can be higher than replacing employment income. To ensure household help can be funded in the event of disability, stay-at-home parents (men or women) should consider taking out home duties TPD or home duties income protection policies.

Understand the changes to taxation, Medicare and superannuation

The federal government’s budget, which is usually delivered in early May each year, is regularly used to announce changes in tax rates, Medicare thresholds and superannuation rules. In recent years, there have been some significant changes to all three.. Speaking to a financial adviser about the net effect of the changes, and the potential to use any extra money for superannuation or savings, is a great way to contribute to your financial future

New tax rates
Tax rates are changing on July 1, 2024. Initially introduced by the Morrison government, and altered by the Albanese government, all taxpayers will benefit from a lower effective tax rate. These extra dollars, designed to help with the cost-of-living, are the third stage of tax cuts in a process to reduce income taxes, that was initiated in the 2018 budget.

Under the Stage 3 rates, the first $18,200 of annual earnings is not taxable and is known as the ‘tax-free threshold’. Then there are four tax brackets: individuals pay tax at 16% on earnings between $18,201 and $45,000, 30 per cent for earnings between $45,001 and $135,000, 37 per cent for earnings between $135,001 and $190,000, and 45 per cent for every dollar earned over that.

Medicare
The government has changed the Medicare low-income threshold. The Medicare levy is 2 per cent of your taxable income but is not payable by those earning $24,276 or less. After that, the levy increases gradually and the full 2 per cent levy is paid by anyone earning more than $30,345. Those thresholds are changing to $26,000 and $32,500. There are exceptions to these rules, including for seniors and pensioners. A financial adviser can help explain the rules.

Superannuation
The current superannuation guarantee rate is 11 per cent of your ordinary time earnings. From 1 July 2024, that will increase to 11.5 per cent, and then to 12 per cent on 1 July 2025. For some employees, the increase to the superannuation guarantee rate will result in a reduction to their take home pay. That’s because their total salary will not be altered to compensate for the higher superannuation guarantee rate.

The Bank of Mum and Dad

Some Mums (and Dads) can help their kids save up for a home loan. The bank of Mum and Dad inject around $2.7 billion into the property market each year, based on a survey from Jarden Australia economists. And the average amount parents ‘lend’ to their children is $92,000².

There are a number of steps you can take, if you can afford it, to help out.

1. Gift a home deposit. Giving your grown-up child the money for a home deposit gives them an amazing head-start to property ownership, because it reduces the amount they must borrow and therefore the amount of interest they’ll pay over the life of the loan.
   
   
2. Club together on a purchase. If your child is struggling to save for a deposit on their own, you could consider purchasing a property in which you both own a stake with a joint loan. 
   
   
3. Go guarantor on a loan - Guarantor products are increasingly popular because they allow parents to use the equity in their own home to ‘guarantee’ their adult child’s loan.
   
   
4. Seek government assistance - Helping your son or daughter explore the financial assistance available from the government for first-home buyers could be the boost they need to get onto the ownership ladder.
   
   
5. Help them fix their record. A credit rating or credit score is used by banks to determine whether someone is a ‘good risk’ as a borrower, so a bad credit record can make it much more expensive, and even impossible, to obtain a home loan. If a bad credit record is standing in your adult child’s way of borrowing, helping to set it straight can put them on the path to purchasing their home independent of you.

Speaking to a financial adviser is a great place to start, if you think any of these options apply to you.

Conclusion

There’s plenty Mums (and Dads and carers) can do to help their own financial situation, as well as their children’s future.

It just takes hard work and plenty of diligence and a great starting point is getting in touch with a financial adviser.

1. https://www.servicesaustralia.gov.au/sharing-your-parental-leave-pay-for-child-born-or-adopted-from-1-july-2023?context=64479

2. https://www.afr.com/companies/financial-services/the-bank-of-mum-and-dad-is-good-for-70-000-new-analysis-concludes-20231129-p5enpp