Parents 'Savings Sap' fund stretched
The ‘lost generation' has been hit hard by the economic downturn as young adults have struggled to get jobs and make ends meet, so they are having to rely on their parents more than ever for support.
According to research from the fourth annual Scottish Widows Savings and Investment Report, adult children are continuing to ‘sap' their parents' savings and investments and while the average amount being handed out has increased significantly, the number of parents able to give has fallen. Almost half (47%) of parents with children over 16 have given or loaned money to their adult children or grandchildren; this is a drop of 9% from 2009, but the average ‘Savings Sap' is £13,660 (up from £11,800 last year), revealing those parents able to give are being forced to give more as their children struggle. The overall saving sap fund has decreased to over £64.3billion, from £72.5 billion last year.
Many young adults are forced to borrow from their parents just to get by, over a third (35%) are digging into their parents pockets to fund day to day spending and living expenses, compared to nearly a quarter last year (24%) Over a third (38%) needed the parental handouts to pay off debt and 34% needed the cash for a house purchase. Whilst one in ten of those using mum and dad's (or grandparents) money are doing so in order to train for a new career as many people have had to reassess their career options.
Iain McGowan, savings expert at Scottish Widows comments: ""Our "savings sap" research highlights the "double whammy" of the recession where children are relying on their parents. On the one hand, "generation Y" is looking ever more to its parents for help as it struggles to get jobs, credit and mortgages - and to clear debt. At the same time, the "Bank of Mum and Dad" is not as readily available as it once was, often for the same reasons. This means that fewer parents can afford to give or loan money, while those who can, are being asked to provide more. The overall effect though is a fall in the "savings sap fund" in these challenging economic conditions. "
The immediate effect the saving sap fund has had on parents is also alarming. 82% of parents who gave money to family members had to dip into their savings to do so, and worryingly 54% of these do not think they will be able to top up their savings. Handing money out to their kids has also led over a fifth (22%) of parents to cut back on day to day spending, one in ten have increased their own levels of debt including mortgaging or remortgaging their property, nearly a third are saving less (31%), and 12% have stopped saving altogether. If parents didn't have to hand out their hard earned cash, 32% would have been likely to save it toward their retirement.
The research also reveals that over half (52%) of all parents with children aged 16 plus that have already given money to their children are expecting to give again in the future. This group of parents think that they will have to donate on average another £14,159, over £1,500 more than was predicted last year (£12,564), which on top of the £13,660 they have already given means that they are only half way through their giving cycle. However, not all parents are in a position to give their children or grandchildren a helping hand. Nearly a third (31%) of those who have not given any money to their children or grandchildren could not afford to, and 18 % had no savings to give.
Iain McGowan continues "With many parents only half way through their giving cycle, this is a worrying situation to be in. Parents will not only be extremely vulnerable to any unforeseeable circumstances such as salary cuts, but the extra handouts to their kids can also affect them in retirement, meaning they may have to work longer, or make their retirement savings stretch further. The earlier parents and children get into the habit of saving the better. Saving regularly into a tax efficient savings vehicle such as an ISA can help to build up a "Sap Fund" and make a big difference."