Life has become more expensive in recent years, especially if you have children or grandchildren who are just starting out. Covering everyday living costs can be challenging, making it even harder to plan for the future – especially when the ‘Bank of Mum and Dad’ comes in!
Over the years, the Bank of Mum and Dad described adult children turning to parents or grandparents for vital financial support. In 2024 alone, it is estimated that the Bank of Mum and Dad distributed gifts totalling £9.6 billion.
Intergenerational financial support remains a key consideration for many families and frequently forms part of long-term financial planning. Most withdrawals from the Bank of Mum and Dad are linked to major milestones such as getting on the property ladder or funding further education.
The shift in family financial support
Whilst the desire to help children and grandchildren is natural, there has been a major shift due to the increasing financial strain on parents and grandparents.
With rising living costs, stagnant wages, and inflation affecting all aspects of life, many parents are no longer in a position to offer substantial financial help. This has created a generational shift where younger people are expected to take on more financial responsibility themselves, from managing student debt to saving for their own homes.
With this in mind, it’s essential to consider how this may affect your own financial wellbeing. Some of the key considerations include:
- What’s the impact on your long-term savings or pension plans?
- Will giving or lending money reduce your retirement income?
- Are there any tax implications associated with gifting?
When the roles reverse – children supporting their parents
For years younger generations have relied on parents and grandparents for financial help – from house deposits to car payments or even just a little help to get through the month. But with rising care costs and longer life expectancy, that support is becoming more of a two-way street.
Research from Aegon shows that an increasing number of young people are preparing themselves to provide financial support for their parents. Their concerns include:
- 34% of people worry their parents won’t have enough money in retirement
- 55% of adults living with their parents expect to provide financial support during their parents’ retirement
- Only 46% of 45 to 54 year olds feel confident about their parents’ financial prospects
- 37% of people said they’d last withdrawn from the Bank of Mum and Dad in their 20s.
It’s essential for adult children to consider if they are ready for the emotional and financial impact of being part of the “sandwich generation”. This is the generation who find themselves looking after elderly parents whilst trying to juggle the responsibilities of parenthood.
How can financial planning help?
Investments can be used strategically to support family members while maintaining financial security.
For children and young adults, the first priority should be building financial literacy. Understanding budgeting, saving, and investing is crucial to gaining independence. Setting up an emergency fund, creating a clear savings plan for major life goals (like homeownership or education), and beginning to invest early might lead to long-term financial security.
Parents play a vital role by offering guidance rather than direct financial support. Encouraging financial independence, teaching money management skills, and helping children set realistic goals will lay the foundation for future success. If direct assistance is still needed, parents may explore alternative options like low-interest loans or co-signing loans, rather than giving money outright.
For grandparents – there is the possibility of setting up trusts or family savings plans that can benefit future generations, especially for education or homeownership. Additionally, it is worthwhile creating an estate plan including Wills to ensure wealth is passed down tax efficiently without burdening younger family members.
How can Origen help?
Talking about money with your family can be difficult but your Origen adviser can help make the conversation easier. They can support you in opening up honest discussions between generations, guiding you to think about your financial goals and long-term plans. Through this, your adviser can work with you and your family to build a comprehensive financial plan that makes the most of tax-efficient allowances and supports financial security across generations.
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