Living off retirement is no easy feat and while people know they’ll need hundreds of thousands of dollars to live comfortably in their later years, new research shows that people who lend money to their kids and grandchildren may not be properly planning for their future. In fact, research released by UK brand Legal and General shows how younger generations are increasingly relying on the ‘bank of mum and dad’ to scoop up enough cash for their own home deposits and parents aren’t thinking about how this will impact their retirement.
New figures show that thousands of over-55s people across the United Kingdom have already joined the ‘bank of mum and dad’ to help their children and grandchildren become homeowners and that older people are becoming increasingly generous when it comes to their giving. For example, over-55s are now giving an average of £24,100 (AU $43,485, US $29,300) to their kids. That’s an increase of more than £6,000.
Meanwhile, 56 per cent of over-55s are giving money to their younger family members because it’s “a nice thing to do”. The research shows that many people are dipping into their own cash savings, pensions and retirement income to give money to their children and grandchildren and may not realise this could significantly change their own retirement plans.
It was found that 55 per cent of over-55s who offered to help a younger family member had to cut back as a result and accepted a lower standard of living after they offered help. What’s more is 26 per cent of people admitted they didn’t think they had enough money to last retirement because they helped their kids or grandchildren and 16 per cent said they were relying on a lifetime mortgage to help others out.
The results also found that one in 10 people over 55 who supported a loved one don’t feel financially secure and 44 per cent didn’t seek any sort of advice before gifting money. CEO of Legal and General Chris Knight said in a statement: “The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice.”
Knight said that there are a vast range of considerations today’s retirees face when it comes to planning their finances and they need to think about whether they can really afford to help their children buy a home and also set aside funds they may need for their future care needs. He added: “Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.”
Interestingly, the research found that men are more than twice as likely to postpone their retirement after helping loved ones than women, but it’s women who are more likely to be concerned that they wouldn’t have enough money in retirement. It follows data released by the Financial Planning Association of Australia (FPA) earlier this year which found younger generations may be better at budgeting than Boomers.
That research showed an extraordinarily high number of 18 to 24-year-olds (81 per cent) and 25 to 39-year-olds (76 per cent) would like to sit down with a financial planner and help get their money in order. And while it may come as a surprise, the data also revealed more younger adults have a better grip on where they money is coming and going than the older generations.
Two thirds of Gen Z (64 per cent) and Gen Y (67 per cent) are already modelling positive financial behaviour with budgets in place to manage their finances, compared to 53 per cent of Gen X and 46 per cent of Baby Boomers. Meanwhile, another study from Curtain University in 2018 found that while it can be hard to say no to adult children who need help, lending them money does them no favours when it comes to their long term happiness, health and financial security.
That study showed that while ‘the bank of mum and dad’ may relieve the child’s financial burden in the short term, it does nothing for their overall happiness, wellbeing and financial security in the long term, no matter the amount they receive.
Not even large sums of inheritance or cash payments were enough to make an impact, with researchers observing that children are more likely to succeed financially because of their skills and education rather than monetary gifts.
Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.