The top 7 ways the “Bank of Mum and Dad” help out children (it’s not just property)
Posted onThe well-known expression, the “Bank of Mum and Dad”, is usually used as shorthand for parents giving their children a leg-up onto the property ladder with money towards a deposit on a house or flat.
It’s become increasingly prevalent in recent years as rocketing property prices make it more and more difficult for younger people to afford their own home.
However, the financial support the Bank of Mum and Dad provides for offspring goes far further than that.
A recent survey carried out by interactive investor suggests a whole series of ways parents are helping their children – and providing money for a property purchase isn’t even the most popular method of financial support.
Here are the seven most popular ways parents help their children financially.
1. Helping with the cost of further education
Nearly 60% of parents said they have helped pay their children’s university tuition fees to avoid the necessity of a loan or provided other support such as help with living and subsidence costs.
Behind the headline of tuition fees, university costs can be daunting. Even living in university halls of residence can be a drain on financial resources – and there are also the costs of day-to-day living, along with other outgoings associated with a typical degree course.
2. Allowing adult children to stay in the family home
Although it’s something that is often overlooked because there’s no actual financial transaction involved, parents allowing their children to live in the family home, either rent-free or for minimal cost, is a common method of support.
It can also be a substantial one given increasing rental costs, especially in larger cities.
It’s difficult to quantify in pounds and pence because, as a parent, you’re liable to have your own idea of what you’ll want to children to do while they are still living at home. You may ask them to carry out some household chores to “earn their keep”, or at least be responsible for cleaning their own clothes.
There’s also the often-overlooked cost to parents of having to maintain a bigger property than they may have been planning to. Having children still living at home could delay your ability to downsize to a smaller property with potentially cheaper overheads.
3. Buying a car or helping with car-related costs
Often the cost of a first car itself is quite reasonable. Many young people just passing their test will be happy with something straightforward – a simple runaround to gain some road experience in – rather than wanting to impress their friends with a top-of-the-range car.
However, the insurance costs for a new driver can be prohibitively expensive. So, it’s not a surprise that 46% of parents support their children in this way.
Finder report the average annual cost of insurance for even the most basic car for a 19-year-old is £1,500.
On top of that, there’s the ongoing cost of maintenance, servicing, and the annual MOT.
4. Help with a deposit for a home
Even though this is actually the fourth most common means of support when it comes to the Bank of Mum and Dad, more than 40% of parents reported that they help their children in this way.
Government figures show that the average property price increased by 10% in the year to November 2021.
It’s not surprising, therefore, that a recent report from Halifax confirmed that the average age of a first-time buyer is now 32, up from 29 a decade ago.
5. Putting money into a savings account
Parents putting money aside for their children has long been a common method of financial support.
Often this will start when the child is very young in the form of a simple savings account. The child usually takes over this account at a relatively young age and uses the money for their own savings – Christmas and birthday gifts for example.
This is also one of the most popular and straightforward ways for grandparents to provide financial support for their children.
6. Payment into an ISA
Beyond a simple savings account, saving into a tax-efficient Individual Savings Account (ISA) is an effective way for you to channel money to your children. 23% said they’ve supported their children in this way.
This would start with payments into a Junior ISA, that automatically passes to the child when they turn 18. Beyond that, there are different ISA options that are free from Income Tax and Capital Gains Tax.
7. Contributing to their adult children’s pension
If you consider that pension funds cannot be accessed until age 55 – rising to 57 in 2028 – then paying into your child’s pension is very much in the “long-term investment” category.
However, it can often be a sound method of financial support.
If your children are saving for a deposit on a property, then it’s likely that they’ll only be contributing the minimum amount into a workplace pension scheme. If they’re not in such a scheme it’s possible they may not be saving into a pension at all.
By starting to save into a pension for them now, you’re immediately giving them the benefit of potential investment growth and simple compounding that they would otherwise have missed out on.
Get in touch
If you need help or guidance when it comes to supporting your children financially, we’ll be happy to help you.
You can email us at enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.
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