Cost of living crisis could drive the Bank of Mum and Dad bust, life office warns
The wealth of parents who have been supporting their ‘adult’ children could be about to dry up, a life office has warned.
According to the Institute for Fiscal Studies (IFS), £17bn a year is gifted or loaned annually, almost all from parents to adult children
But Canada Life said its survey found that almost half of those who have been supporting family members financially will struggle to continue doing so for the next 12 months
It also found that relatives felt uneasy about asking for financial assistance, with nearly three-quarters (74 per cent) admitting they did not feel comfortable asking for financial support from family or friends.
Almost three-fifths (58 per cent) of adults with living parents said they would find it difficult to offer financial support should their parents need it. Nearly half said the same for their adult children, and over half, 55 per cent, or their adult grandchildren.
The findings also reveal the emotional impact the rising cost of living is having on households across the UK.
Over half of UK adults were not only concerned about the impact the rising cost of living will have on themselves, but there were growing concerns about the known effect it will have on the wider family, including their children, over half, parents , 46 per cent or grandparents, 45 per cent.
Andrew Tully, technical director at Canada Life commented: “Financial support from family members has long been a helping hand for many, including the Bank of Mum and Dad which has played a significant role. However, the cost of living crisis means we may well start to see a reverse in this trend. As inflation continues to soar, families are being forced to make tough financial decisions that could impact themselves and loved ones.”
£17bn wealth transfer ‘creates inequality’ – IFS
According to the IFS, informal gifting of £17bn a year from parents to their adult children is widening inequalities among younger people.
Most of the transfers come from parents aged over 50 to children in their late 20s and early 30s. Around 30 per cent of young adults receive at least one substantial transfer of £500 or more over any eight-year period.
The IFS found that the children of university-educated homeowning parents received around six times more in wealth transfers during their 20s and early 30s than the children of renters.
White young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults.
IFS research’s, funded by the IFS Retirement Savings Consortium and the Economic and Social Research Council found the amounts received by the highest-income fifth are 26 times bigger than those received by the lowest-income fifth.
The highest-income fifth receive an average of £6,300, or 3 per cent of their income over the same period, while the lowest-income fifth receive an average of £240, or 0.5 per cent of their income over the same period.
Over half of the value of transfers is given by the wealthiest fifth of adults – almost exclusively homeowners and disproportionately living in London and the South East.
Only 18 per cet of the children of renters receive a substantial gift in early adulthood, while almost half,or 46 per cent, of the children of university-educated homeowners received one in the same period.
White young adults receive substantial gifts much more often than black or Asian young adults, with one in 10 white young adults receiving a gift in a two-year period, compared with one in 25 black African or black Caribbean young adults, and less than one in 30 Pakistani or Bangladeshi young adults.
The research also found women are more likely to receive gifts in early adulthood and much more likely to give gifts and loans following the death of a spouse.
Even when accounting for the differences in their income, wealth level and other characteristics, women were more likely than men to receive gifts at younger ages, while men are more likely to give gifts at older ages.
Women often make gifts and loans when they become widowed, while men are not any more likely to give when they lose a partner.
Bee Boileau, a research economist and author of the report, said the cash transfers are important assistance for some, but were very unequally spread.
Boileau explained: “The children of university-educated homeowning parents receive around six times more in wealth transfers during their 20s and early 30s than the children of renters, while white young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults. “As well as the benefits these transfers can provide, policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next.’