Bank of Mum & Dad reaches breaking point
The Bank of Mum and Dad has become a force to be reckoned with in recent years, with parents helping out their children financially in many areas of life.
But, in recent years, this source of financing has been driven to breaking point.
In this video, we look at new research revealing the real state of the Bank of Mum and Dad in 2020.
In this video, we’re looking at brand new research about the Bank of Mum & Dad.
This research comes from Interactive Investor. It takes a close look at one of the biggest lenders in the UK, and concludes that the Bank of Mum and Dad is being stretched and is at growing risk of default.
The research is part of the Great British Retirement Survey 2020. They spoke to more than 12,000 UK adults, all at different stages of their retirement journeys.
The research found widespread financial support from parents to children.
51% of already retired parents had helped their children buy property.
10% loaned money and 41% gifted money – the proportion gifting money was up 6% on last year, with more parents gifting the cash, never expecting to see it paid back.
A similar number of parents who are yet to retire anticipate providing financial support to children to help them onto the property ladder.
21% of parents who are still working have drawn some or all of their pension tax-free cash lump sum and used at least some of it to help their children buy a home. This raises concerns about sustainability.
The primary goal of your Financial Plan should be to make sure you are OK.
If you can afford to fund your lifestyle for the rest of your life, then you can look at gifting money to children. Fasten your own oxygen mask first.
The research also shows the impact of the Covid-19 pandemic on retirement plans.
21% of workers aged 60 to 65 have said they plan to delay their retirement plans because of the pandemic.
We know that Covid-19 has hit people’s finances hard, people of all ages.
Younger people especially have seen job losses and pay cuts (on furlough), and appear to be turning to their parents for financial support – even if their parents are less able to afford these bailouts.
Of those delaying retirement, 25% said they would have to wait another year before giving up work.
34% said they would have to wait another two years, 23% said another three years.
24% said they thought they would never be able to give up work and retire.
So, why are children calling on their parents to fund things via the Bank of Mum & Dad?
The average house price has risen by 1,170% in the past 40 years, from around £20,000 to more than £234,000 today.
Older generations have benefited from these price rises, younger generations are increasingly struggling to get a foot onto the property ladder.
It’s not just money coming from mum and dad. There are rising calls on parental support for childcare too.
The research shows that 29% of retired grandparents are now providing unpaid childcare, compared with 18% last year.
More working grandparents are expecting to provide childcare when they retire. 36% versus 20% last year.
Fewer think they will be able to do voluntary work in retirement, 44% versus 52% last year, or see retirement as time to dedicate to themselves (50% versus 55% last year).
Another growing concern for older people, which is important when it comes to the Bank of Mum & Dad, is funding for later life care.
25% of retired respondents have actively prepared to fund later life care, should they need it.
The older people get, the more likely they are to proactively prepare.
The biggest proportion of retired respondents (52%) had not prepared but were worried about it, saying that it was on their mind.
This is so important, because later life care costs can massively reduce the size of an inheritance – in some cases, wiping it out altogether.
We spend a collective £12.6 billion each year on later life care, and this total is likely to grow in the future as the population continues to age.
We know that parents want to leave an inheritance. 81% of retired respondents to this survey say they wanted to leave an inheritance to their family or other loved ones.
There’s a good argument for giving away money to family during your lifetime, to see them enjoy the proceeds – if you can afford it!
With the Bank of Mum and Dad at breaking point, please put yourself first – secure your own Financial Plan, and then look at excess cash available to gift or loan to adult children.
This is where Financial Planning is essential; you can model the affordability of giving money away, or leaving money behind when you die, assuming you secure your financial priorities first.