The regular Mary Holm column is on holiday until January 29. In the meantime, the Weekend Herald will be publishing extracts from her book, A Richer You — How to Make the Most of Your Money
Q. I have listened to many of your on-air interviews and read several of your articles over the years. While I agree with your views on most things, I was disappointed and surprised to read that you believed in spending your children’s inheritance.
I don’t agree that children will squander an inheritance. On the contrary, my experience, over several family generations, is that heirs take the responsibility to look after and grow an inheritance very seriously, enjoying the benefits of some additional money while aiming to grow it for another generation.
A: There’s been a misunderstanding here. The reasons I encourage retired people to “SKI”, or “spend the kids” inheritance’, have nothing to do with whether the children will squander the money. I agree that many families handle inheritances well — although there are also cases of the opposite.
My concern is that many people deprive themselves during their retirement so they can leave money to children who don’t need it as much as their parents did.
In any case, most retired people these days own their own homes, and commonly leave these to their children. Houses are worth more, relative to incomes, than they used to be.
And given that families are smaller than a generation or two ago — so the home often goes to just one, two or three children — each child gets a pretty generous chunk of money. Usually they don’t need to inherit their parents’ investments as well.
True, occasionally the parents have used a reverse mortgage, which eats into the value of the house to be inherited. But usually there’s still a fair bit left over for the estate.
Another point was made at a recent conference at the Retirement Policy and Research Centre at the University of Auckland. Life expectancies are growing fast, and these days it’s common for people to live well into their eighties and nineties. That means that by the time the children inherit, they are often in their fifties, sixties or even seventies, and don’t need more money at that stage.
The trend is for parents to help their children much earlier on — perhaps to cover university expenses or assist with a first-home deposit. That probably works better for both generations. The young ones get the money when they most need it, and the older ones have the pleasure of seeing their money in use by their whanau.
In many families it’s a good idea for parents and adult children to discuss all this openly: “You get the money now, rather than later”. And, by the way, if the children are not happy to see their parents spending on a few luxuries in retirement, that might signal that the kids don’t deserve to inherit!
P.S. There’s another issue here, too. It seems pretty obvious that inheritances contribute to the widening gap between the rich and the poor in New Zealand.