Cradle Raiders: Aussie parents take $1.3 billion from savings accounts set up for kids

Key facts

• 4 in 10 Aussies parents who have set up savings accounts for their kids have taken money out of those accounts
• Parents have withdrawn a total $1.3 billion from accounts set up for their kids
• The main reason parents are withdrawing kids’ savings is to cover everyday expenses like groceries, rent and the mortgage

Aussie parents are thinking ahead to their kids financial future

A Mozo survey of over 1,000 parents has revealed that more than half of Aussie parents have set up savings accounts to start building up a nest egg for their kids.

“Parents are clearly thinking ahead to their kids financial futures and recognising the importance of building up a savings fund to cover expenses like education, buying a first car or even starting to save for a home deposit,” says Mozo Director Kirsty Lamont.

But it’s not all good news - the survey also revealed that parents struggling with rising costs of living are having to make the hard choice to dip into these savings accounts just to get by.

The cost of living has parents dipping into kids’ future funds

Of the parents who have set up savings accounts for their kids, four in ten have admitted dipping into these funds for one reason or another.

“Despite all their good intentions, as the cost of living continues to rise and wages fail to keep up, many Aussie parents are being forced to dip into the money they’ve set aside for their kids’,” says Lamont.

A total of $1.3 billion was withdrawn from savings accounts set aside for children, showing that while parents have their hearts in the right place, the state of their wallet is interfering with these good intentions.

Why are parents raising the savings they’ve set aside for kids?

So where are all these funds going? If you’re expecting to hear that parents are living large on these money stashes, think again. Of the parents who found themselves needing to dip into the kids’ savings accounts, a majority (51%) reported using the money on everyday necessities, like groceries, rent or mortgage payments.

“It’s clear that this money isn’t being used flippantly. Parents are withdrawing it to cover things like rent, household bills, school fees - things that benefit their kids as much as them,” says Lamont.

Large, unexpected costs were the next biggest reason parents resorted to cradle raiding, with 40% using the funds for things like hospital, vet or mechanic bills. A further 30% dipped into their savings stash to pay for a big ticket item like a family holiday, television, computer or new car.

How much do they take?

With everyday spending taking up the lionshare of withdrawn funds, it’s not surprising to hear that parents are withdrawing fairly small amounts from their kids’ nest eggs. Nearly half of parents withdrew $500 or less from the kids’ account, while one in five took up to $1,000.

“For the most part, it seems that parents are taking relatively small amounts from their kids accounts in order to get through an unexpected financial hit, or to see them through to pay day,” says Lamont.

“The problem isn’t really the parents behaviour. The real problem is that Aussie families are so strapped for cash that they’re having to resort to using money they’d been trying to save for their kids’ futures just to meet basic expenses.”

Are they putting it back

For the most part, parents have paid back the money they took from their kids’ savings stash, but 1 in 5 haven’t, which is a $286 million hole in the savings set aside for our children’s futures.

“It’s reassuring to see that most parents are prioritising replenishing the funds when they can, but there’s a significant portion of parents who haven’t been able to, which just goes to show how much of a struggle it can be to put savings aside for the average Aussie family,” says Lamont.

What’s the alternative to cradle raiding?

Unfortunately, there’s not always a way for parents to avoid dipping into funds set aside for their kids futures. According to Lamont, while cutting back on discretionary spending may help in some circumstances, that’s not always possible or practical.

“When it comes to things like holidays or renovations, that’s a judgement call for parents to make about what benefits their family the most,” says Lamont.

“On the other hand, for parents who are dipping into their kids’ accounts to pay for necessities, or because of unexpected expenses like a trip to the hospital or mechanic, dipping into savings instead of turning to credit is sometimes the most financially responsible thing to do.”

So is there an alternative for those parents who want to leave their kids’ savings stash intact? Here are a few ideas for other ways to manage your spending.

Use credit wisely

While a credit card may be the first thing that comes to mind for covering day-to-day costs, parents should proceed with caution before turning to plastic for everyday needs.

“Drawing on a savings stash you already have, whether it's in your name or your children’s, is far better than racking up a credit card bill and paying interest on it,” says Lamont.

Having said that, when used correctly, a credit card can be an effective way to manage your budget in between paychecks. The key is to only spend on your card what you know you’ll be able to pay back within the interest-free days, and to always clear the full balance, each and every month.

Refinance your mortgage

The biggest reason parents were dipping into these savings stashes was to cover everyday costs, including making mortgage repayments for some people.

“If your mortgage repayments are eating up more than 30% of your monthly budget and you’re finding you need to dip into your savings to cover them, it’s time to check in and see if there’s a better deal available for you,” says Lamont.

By refinancing a $300,000 mortgage from the average rate of 4.36% to the lowest in the Mozo database, a hot 3.44%, you could shave $333 off your monthly repayments for a little extra breathing room in your budget.

If you can’t refinance, try giving your lender a call and haggling your way to a better deal. Recent Mozo research showed as many as 70% of borrowers who haggled succeeded in cutting their home loan rate down.

Work on your savings buffer first

If you often find yourself short of cash in an emergency, you may have to consider whether you’re in the right financial position to start saving for your kids just yet.

“It’s great that Aussie parents have good intentions when it comes to saving for their kids future, but what this research shows is that it’s important to have your own savings built up as well. That might mean prioritising an emergency savings fund before earmarking any of your stash for your kids,” says Lamont.

Mozo research has found that in order to have a savings buffer of three months of living expenses, Australians need an average of $9,063.91. Get started on your emergency fund by comparing savings accounts and finding the right one for your needs.