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Are you financially able to bail out your grandchildren?

We often hear the phrase ‘Bank of Mum and Dad’ bandied about. It’s a reference to the trend where parents help their children financially. Increasing costs have forced many adults to turn to their parents to help them with a deposit for a home, paying off debt and even to cover basics like food and to pay for uniform for the kids.

According to research from Savills, the ‘Bank of Mum and Dad’ is set to fund a total of £25 billion over the next three years (2022-2024). It’s no surprise that the Bank of Mum and Dad has become too stretched. It means that younger generations now have no alternative but to look for help further up the family chain, especially if they want to avoid going further into debt.

Moneyfarm’s own research has found that, increasingly, younger generations are turning to grandparents for the type of financial support that they would’ve originally asked of parents. It’s put a lot of pressure on older generations as the ‘Bank of Gran and Grandad’ is now funding not one but two generations as parents are also still in need of a bail out, especially with the cost-of-living crisis escalating.

Regular financial help

Moneyfarm’s research has found that grandparents (over 65s in particular) regularly help the younger generations out with both essential (such as rent, mortgage and energy bills) and non-essential (including clothes, family holidays and car repairs) expenses.

A fifth (20%) of 18- and 40-year-olds admit they have asked grandparents for financial support to cover one-off costs such as buying new shoes and clothing for their grandchildren (38 percent) and paying for family holidays (34%).

Just over one in four grandparents (27%) help fund their grandchildren’s school trips and sub pocket money when their parents can’t afford it.

Just over one in five (22%) pay for presents for their grandchildren on behalf of their parents, while 8% cover their mobile phone bill. A further 8% admit to financially supporting family members through university or college.

But grandparents are not only having to cover non-essential costs, they’re also paying for essential costs for their children and grandchildren. Over half of those polled (52%), said they have had to ask for financial support from their older family member for critical items – with almost a quarter (23%) confessing it makes them feel uncomfortable and embarrassed.

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Thirty percent of grandparents admit to helping finance their adult children’s weekly food shop and 16% have needed to step in to cover or contribute towards their mortgage. One in ten have come to the rescue helping their grandchildren out with rent.

Getting on the property ladder is proving a large enough expense that 19% of grandparents are helping their children afford a mortgage and 5% are also doing the same to help their grandchildren.

Tightening belts to help family

While most grandparents polled (67%) were happy to help their family, around 19% felt obligated to do so to keep their offspring financially afloat. Worryingly, 30% had to tighten their own belts to help family members, while 51% had to dip into their savings pots to offer support.

So, what does this trend mean for older generations? Well, for baby boomers that are keen or able to help their family (whether they feel pressured to or not), it could have a negative impact on savings or retirement income. It could even mean a change in lifestyle.

But for others that have benefited from house price increases over the years and who are able to unlock this equity easily through a house sale or extending a mortgage it may be more financially feasible to help family.

If you’re a grandparent that is considering helping a family member, it’s important to conduct a financial MOT first before offering any financial assistance. We’re in no way suggesting you give your family member a flat “no” if they ask for help. But taking some time to do an MOT will enable you to work out how much money are able to give family to cover expenses. It will also help to ensure you can afford to give some money away.

Helping family shouldn’t result in you landing in financial difficulty. After all, the older you get the harder it can be to recoup such savings particularly if you’re no longer working. Helping family can be a noble thing to do and can make a big difference in giving younger generations a step up in lifestyle and there’s no reason why it can’t be comfortably achieved after a good financial plan has been put in place.

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