Most kids dream of the day they can leave home, but have you planned for the cost of their independence?
Everyone knows that it costs a lot of money to raise a child; from the baby who needs a constant supply of nappies and clothes they will outgrow in just a few weeks, to the teenager who needs (not just any…) mobile phone, money to travel to school and those expensive trainers all of their mates are wearing.
Parents generally plan for these costs, but not for the post-childhood ‘can-I-borrow-a-tenner?’ phase. However, new research by personal investment company Fidelity shows that you really should be planning for the future, as more and more parents are giving their adult children financial support at a considerable cost.
|“Parents are spending upwards of £23,000 on their children once they have left home.”
Rather shockingly, the research also revealed that the largest age group receiving cash from ‘The Bank of Mum and Dad’ is 30-39 year olds, while 10% of parents surveyed said they still financially helped their grown children over the age of 40 – something virtually unheard of in previous generations.
Hot off the heels of Spain’s Supreme Court recently ruling grown-up children must be supported by their families unless they have a job, there are a variety of reasons to explain the rising age of children who are getting financial help from parents. For starters, the UK is still recovering from the recession. Things are nowhere near as stable as they were before the economic downturn, meaning the housing and job markets are both severely under strain.
Graduates are also finding it hard to find high-earning roles, which combined with the high cost of living, makes it highly unlikely they will be able to afford a deposit on a house. The rising cost of tuition fees is also having a huge effect on the finances of graduates – long after they have left the cosy nest of university – and is set to continue thanks to the latest set of increases introduced back in 2012.
Snakes and ladders
It will come as no surprise then, to hear that the two most common issues parents end up helping their children with are tuition fees and house deposits. However, as the largest age group still relying on cash from their folks is 30-39, we can probably assume that they are not receiving any help with university fees!
The most expensive cost parents have to shell out for is the dreaded house deposit, when their children reach their 30s and still can’t afford to find their feet on the property ladder. Almost half of those asked had contributed towards a deposit, and the average down-payment is currently standing at over £1,000, a fee usually taken, depending on age, from either their life savings or pension pot.
Although there has been a slight drop in house prices over recent months, taking that first leap into the property market can be nerve-racking for any first time buyer without a bit of “monetary-morale” from parents.
If you’re thinking this all doesn’t sound too bad, remember it can also fall on parents to help mature children pay for weddings, cars and even raising grandkids.
When a plan comes together…
With so many costs, it’s vital for parents to plan ahead and there are a wealth of online tools that can help. For example, Fidelity offer products such as ISAs and pensions, so you can avoid dipping into your savings or delaying your retirement. You could also use online calculators and budget-planning websites to work out exactly how much you might need to save.
Considering the implications of your support over the long-term may also be useful for parents. To ensure the gravy train doesn’t rumble on forever, set out clear parameters, give according to your means and come up with a clear exit strategy. Some tough love might also be needed at times, and once your kids are on the path to financial independence – the ultimate aim – you can easily stay on as their ‘financial coach’.
With a whopping 50% of parents saying their savings have taken a significant hit to help fund and financially stabilise their grown kids, this highlights more than ever, the importance of saving and investing your money smartly in modern society.