‘Saving sap' generation push 2 million parents into debt

Despite the economic down turn, adult children are continuing to ‘sap' their parents' savings and investments, according to new research from Scottish Widows. Over half (56%) of parents with adult children, have given or loaned their children or grandchildren a substantial amount of money. The average amount was £11,776, a total ‘Saving Sap' of £72.5 billion, leaving themselves significantly out of pocket. The amount households have given to children - the ‘Saving Sap' - has increased 8% from £67 billion in 2008.

The third annual Scottish Widows Savings and Investments Report reveals that nearly nine out of ten (89%) parents who have given or loaned a substantial amount of money to their children or grandchildren had to dip into their savings or investments to hand out their hard earned cash. As a result, over one in six of these parents (17%) have increased their own levels of debt, resulting in nearly 2 million parents being forced further into debt because of their children. 22% have had to cut back on their daily spending, over a quarter are saving less (27%), and more than one in ten (11%) have had to put a stop to any kind of savings.

With times getting tougher and income being squeezed, it is no wonder nearly half of parents (46%) who have given or loaned money to their children or grandchildren believe they will not be able to top up their savings to replace money taken out. Over a third of parents (36%) would have probably used the money in retirement, meaning this ‘sap' could affect them in their later years as a result of their adult children plundering their savings. Those that are lucky enough to be able to top it back up envisage this taking an average of over two years and four months.

Gordon Greig, head of Savings and Investments at Scottish Widows comments: "The immediate impact of parents providing funding to their adult children can be detrimental on long term savings and investments. Many have had to cut back on saving themselves, reduce their outgoings and even take on additional debt. When times are as tough as they currently are, this is the last extra burden parents need. Whilst some parents have prepared for this financial handout, there are some who won't be in the position to replace these savings. Not only does this leave parents vulnerable to any unforeseeable circumstances such as salary cuts or job losses, it can also affect them in retirement, meaning they may have to work longer, or make their retirement savings stretch further."

Whilst parents may be thinking about their long term needs, it seems that their offspring's needs are much more immediate, as nearly a quarter (24%) of adult children or grandchildren are using or have used their parental handouts to fund their day to day living expenses or spending money. Over a third (38%) needed the money to pay off debt and 30% needed the cash for a house purchase.

The research also reveals that almost half (49%) of all parents with children aged 16 plus that have already given money to their children are expecting to have to dig deeper into their pockets and splash the cash again in the future. This group of parents think that they will have to donate on average another £12,564, meaning that on average they are currently under halfway through the ‘giving cycle'. However, not all parents are in a position to give their children or grandchildren a helping hand. Over a half (55%) of those who have not given any money to their children or grandchildren couldn't afford to or had no savings to give.

Gordon Greig continues "Our research shows the level of future support required is still substantial, particularly for those that have already given. It's questionable as to whether the current younger generation of adults will ever learn the necessary savings habit if their parents continue to bail them out in this way. More importantly, as parents might need to tighten their purse strings more than expected in the near future, the ‘bank of Mum and Dad' may not be as giving as it once was; therefore it is more important than ever for people to save consistently. Parents and children can protect themselves against this situation by saving regularly into a tax efficient savings vehicle such as an ISA 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."