Bank of Mum and Dad still providing financial support to the younger generations

1st February 2024

The Bank of Mum and Dad is still providing vital financial support to the younger generations as they continue to struggle through the cost of living crisis, according to research Saltus Wealth.

The research found that 74% are providing financial support for either their adult children, adult grandchildren or both.

Most respondents in the survey say they were already providing support to their grown-up children (54%) and grandchildren (68%) before the cost of living crisis hit, with holidays by far the most common way in which they were providing financial support, followed by educational costs.

On average, this group is supporting adult children to the tune of just over £12,000 a year and just under £11,000 for adult grandchildren.

However, while ongoing financial support is fairly common between the generations, the report shows that 25% of High-Net-Worth Individual (HNWIs) have started providing support as direct result of the cost-of-living crisis.

Amongst this group, the costs they are most likely to be helping their adult children with are education fees (42%) – including higher education and school fees – mortgage payments (22%), household bills (22%) and groceries (17%). On average these parents have given their adult children just under £11,000 over the past 12 months.

Those who have started providing support to their adult grandchildren as a direct result of the cost-of-living crisis have given just over £15,000 in the past 12 months, most commonly to pay for energy bills (23%), holidays (23%), mortgage payments (15%), transport costs (15%), and higher education fees (15%).

In the previous Saltus Wealth Index Report – released six months ago – the rising cost of school fees was a common reason why many older HNWIs were providing financial support to younger generations, and this is still the case.

In the latest report, 7% say they are specifically helping their adult children pay for school fees i.e for their own grandchildren to attend private school, while 9% say they are covering school fees for their adult grandchildren, suggesting they are paying for their great grandchildren’s private education.

Commenting on the lndex, Dr Michael Peacey, Senior Lecturer, School of Economics, University of Bristol, said “The modest increase in the Index from June last year suggests that, despite many unresolved uncertainties being carried forward into 2024, confidence levels among HNWIs are rising. This is driven by increases in both individuals’ confidence about their own finances and in the UK economy.

“Data from the latest research show that the behavioural responses to the cost-of-living crisis have been varied among HNWIs and their families. For some it may be things like cutting down on luxury items or switching to cheaper supermarkets but for others the decisions are more significant and long-term, such as delaying decisions about having children, starting businesses, or retiring.

“Whilst it is positive to see signs that confidence levels may be beginning to increase, the cost of living crisis is continuing to impact this group through the financial support many of them are providing to their loved ones.”

According to the latest report, despite HNWIs’ slight increase in confidence, with regards to the wider economy and their own finances, the cost of living crisis is continuing to take its toll. Our data show that the vast majority of HNWIs have seen their own finances impacted by the cost of living crisis as well as those of their families. Just 9% of all respondents say the current financial climate has not impacted them at all.

While most HNWIs have made fairly small changes – for example, reducing their personal spending, cutting down on eating out, buying fewer luxury items, taking fewer holidays or switching to a cheaper supermarket – many have also made much more drastic changes.

For example, 13% have reduced pension contributions, 13% have borrowed money and 12% have sold a property in order to balance their finances and adjust to rising costs. However, despite the fact that many HNWIs are having to tighten their own purse strings, they are still willing to provide support to their children, even if it means further sacrifices to their own finances or plans for retirement.

According to the data, while a third (32%) of those who are providing support to their adult children have managed to fund this support through excess income, the rest have had to cut back, with 16% tapping into housing equity and 15% reducing their pension contributions to provide support to their adult children.

For those supporting their adult grandchildren, 22% are sourcing this from excess income. However, 23% have sold housing assets and 20% have reduced pension contributions – rising to 28% for those who have only started supporting as a result of the cost of living crisis. Around one in five (18%) have tapped into housing equity to fund this additional financial support.

Mike Stimpson, Partner at Saltus said “Our latest research shows that although overall confidence in the economy may be beginning to rise again after a period of uncertainty, when it comes to the cost of living crisis, HNWIs are continuing to provide support to their wider family members and that this is now spanning multiple generations.

“In recent times, it has been common that we see parents helping their adult children afford big purchases, such as deposits on houses or buying their first car, but we are now seeing this financial support trickling down to cover the smaller, everyday costs that have risen so steeply.

“What is striking from this research is how many HNWIs are dipping into pension pots and other bigger and longer-term investments in order to be able to provide this support. The high numbers of people reducing pension contributions or tapping into housing equity to help cover their families’ expenses is alarming as it could lead to knock-on impacts on their plans for retirement. The decision to pull money out of pensions should not be taken lightly and it is always best to speak to a financial adviser to fully understand the implications this could have for your plans further down the line.”