Should you lend money to family?

What you should consider before handing over your hard earned savings

You’re probably fairly used to helping your family out with a little extra cash here and there. Whether it’s pocket money for doing chores, or money to pay phone bills, go see a movie or buy clothes, for example.

But what happens when they put their hands out for help to buy the big ticket items? They might want some money to buy a car, pay for a holiday or even get a deposit together to buy their first home.

The question is, even if you can afford to help your family financially, should you? It could provide them with a helping hand that’ll really make a difference, but you also must ensure your needs are looked after and you’re not leaving yourself short. 

Here are some things to think about:

  • Discuss how the money is going to be used. Is it something they could save up for or do they genuinely need your help?
  • Decide if you want the money back. Even if you can afford it now, think about whether you might need the money for other expenses or commitments later.
  • Agree on the terms of when and how the money will be repaid. If you decide on a loan, discuss how and when the loan could be repaid by, plus whether you will impose any sort of penalty (such as interest), if it’s not repaid on time.
  • Write it down. This might sound overly formal, but it sets the ground rules for making a true commitment to repay the loan.
  • Talk early and often to identify potential issues as they come up. Don’t wait until minor issues, such as late payments, become more serious. 
  • Give them a refresher on managing money. This is a good way to really embed the principles of needs versus wants. Ask your family to work out how much they could put aside by using our savings calculator or budget calculator
  • Ask for advice. If you’re lending a significant amount of money, you might want to check with your solicitor if there could be legal repercussions, including what happens to the loan if your child gets married or is in a de facto relationship.

Providing financial support in other ways

Gifting

It’s great, tax-free way of helping your family when they need financial help.

Just make sure you think carefully about whether your gift will put a dent in your retirement savings and if you’ll have enough for the lifestyle you want to lead when you wind down from work. Try our retirement simulator to find out how much you’ll need.

Also consider the impact on your Centrelink entitlements. If you’re receiving benefits, such as the Age Pension for example, a loan or gift to your child may impact on your payments and your financial security. You must tell Centrelink about any gifts or transfers within 14 days of when they have occurred.

Going guarantor

This is one way to help your  family own their tomorrow─whether it’s buying a car or first home, but be careful not to put your own home or lifestyle at risk in the process. Make sure you only go guarantor for an amount that you can comfortably afford to pay if your family defaults on payments.

What else to consider

Whatever option you choose to help support your family:

  • Make sure the loan or gift is within your budget and won’t affect your everyday lifestyle or retirement.
  • You and your family might be interested to know that our new AMP Bett3r Account can help you manage your money, with pay, save and spend accounts.
  • Consider taking out insurance to cover you, or your family member, in the event of unforeseen circumstances.
  • It’s a good idea to get in contact with your financial adviser. If you don’t have an adviser, contact us on 131 267 or use our find an adviser tool.

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Any advice in this page is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters. AMP Bett3r Account is issued by AMP Bank Limited ABN 15 081 596 009, AFSL 234517. Consider the terms and conditions available on request by calling 13 30 30 or at amp.com.au/bett3r and whether this product is appropriate for you. Fees and charges apply.

Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any decision. Except where liability cannot be excluded, AMP does not accept any liability for any resulting loss or damage.