"Sap Back" parents are keeping it in the family

Adult children face an unexpected financial twist in their spending cycle - their parents who once gave or loaned them money are now sapping back and returning to their children for financial handouts. It seems whilst parents are happy to lend a helping hand for house deposits and paying off debts, adult children are increasingly being ‘sapped back' by their parents. The second annual Savings and Investment report from Scottish Widows reveals adult children shell out an average of over £6,500 to their parents making a total ‘Sap Back' figure of £11 billion. What's more over one in ten (13%) have had to dig into their pockets five or more times to help their parents out.

Of those parents who have borrowed money from their adult children, over a third (35%) said they used it to pay off debt, one in seven (15%) spent it on a car, and the same amount used it for spending money and living expenses (14%). Surprisingly only one percent used the money borrowed to enjoy retirement, meaning most of the sapping by parents was for basic living essentials, a factor that will perhaps increase due to the recent credit crunch.

Family comes first

Anne Young, savings expert at Scottish Widows comments: "It's obvious that parents have felt the pinch as a result of being ‘sapped' for thousands of pounds from their adult children, and are now turning the tables on them and ‘sapping back'. As over a third of parents (36%) planned to use the money they handed out to their children for their own retirement, they are finding that they are missing the money in their later years. I do expect the trend of parents having to go back to their children for money to increase in the future."

Family comes first is certainly the case, as over half (57%) of those who have given or loaned their parents money said they did so as they wanted to help out, and the same amount (55%) because they loved them. Over a third gave or loaned their parents money as they felt they could afford to do so (35%), and the same amount believed their parents needed the cash more than they did (34%). However, one in twenty adult children have been asked to give or lend their parents money, but have not been able to, of these almost a third could not afford it (31%) and a fifth had no savings to give (23%).

On balance though, adult children are still ‘quids in' as they have been given or loaned substantially more than they have given back. Scottish Widows revealed adult children are ‘sapping' their parents' savings and investments by an average of £12,610 making a total ‘Savings Sap' of £67 billion. Over four in ten (42%) adult children are using or have used their parental handouts to pay off debt. This large amount is fuelling the need for parents to go back to their children, and ‘sap back' the money previously given or loaned.

Anne Young continues: "It seems that although people could well be tightening the purse strings at a time when the credit crunch could affect finances, families have to resort to helping each other out. The amount of money given or loaned by parents and the number of children ‘sapping' savings have both increased in the last year, to the extent that the overall Sap Fund of children from their parents' savings is well in excess of £60 billion. That's a significant amount, and the glaring hole in parents' finances will need to be replaced somehow, whether by sapping funds back from their children or by other means!"

Professor Merlin Stone, leading economist comments "The current generation of young adults is facing increasing levels of debt as well as steep house prices, so are increasingly turning to their parents for hand-outs to help with these financial drains. This in turn will create a strain on parents' financial situation, especially as the current market has created turbulence amongst all generations. With housing transactions volumes falling, the economic situation perhaps weakening and financial institutions tightening their lending criteria, it's not surprising to see debt pay-off as the main reason for needing money by both generations. However, worryingly this report shows the total amount of these intergenerational gifts is also on the increase, possibly reflecting the rise in every day living expenses for which these sums are being used. Those who are facing their funds being depleted by their offspring may well need to replenish them, and it seems they are beginning to go to their children to do so."

Anne Young continues: "As the figures show hand outs are increasingly being used to provide an emergency loan, or to pay off debt. Parents and children can protect themselves against this situation by putting small amounts of money often into a tax efficient savings vehicle such as an ISA. This year, regulations have changed, which means that you can save even more money tax free, to help build up a ‘Sap Fund'. The earlier parents and children start, the easier it will be, and before you know it, you will have built up a substantial amount of money."