Families bail out friends and relations as inflation bites

Almost a third (31%) of families are providing financial support to their extended family and friends, according to the latest Aviva Family Finances Report. Loans and gifts are given to ageing parents, adult children, siblings and close friends, with families paying out £442 a year on average.

In addition, 34% of families are providing practical support, such as child minding or help around the house, for individuals beyond their immediate family.

The most common recipients of financial assistance are mothers (10%), fathers (7%) grown up children who do not live at home (7%) and sisters (5%). Furthermore, 3% of people provide financial support for their close friends, as the notion of ‘family' extends beyond pure relatives.

Changes in financial circumstances (25%), meeting one-off expenses (21%) or dealing with living costs after unemployment (20%) were the top reasons for UK families providing financial help to family and friends. In addition, 19% said they were forced to help a family member due to their ‘poor financial management'.

Families typically pay out £442 annually:

The typical amount of support provided by each family is £442 per year or 2% of the typical family annual income (£1,983), but some families contribute considerably more. Former partners (£1,447), adult children over-18 (£1,278) and children under-18 living outside the family home (£1,175) all receive an average of more than £1,000 of family financial support annually.

As people's view of ‘family' widens, close friends are often included and they receive an average of £893 annually. 

While some families are in a position to help their friends and relations financially, others provide more practical support. Over a fifth (21%) help with cooking, cleaning or baby-sitting. Eight per cent lend items so people don't need to purchase them and 5% allow family or friends to live with them in order to save money.

Tough choices:

While many families would like to support their extended network of family and friends, this decision is not without sacrifices. One in seven (15%) families who provide support say they have made cut-backs in the last few years so they can continue to provide assistance, and 11% have been less able to support their extended families as they themselves are now struggling.

In addition, 10% have had to provide more support to their extended family and friends in recent years than they did previously. Divorced/separated/widowed families with children are most likely to have seen their families requesting further support.

Finances suffering:

The report also reveals how supporting one's extended family can have an impact on people's own future financial stability. Providing financial support to family and friends is cited as a barrier to saving (46%), repaying debts (24%), putting aside money for their children (14%) and paying into a pension (11%).

The typical annual inter-family and friend subsidy (£442) may not seem much, but over  a 40-year working life it would amount to £17,680 (excluding inflation and any interest) which equates to two thirds (66%) of the typical UK pension pot (£26,940). In addition, if this amount was paid into a workplace scheme and matched by employer contributions, over a 40-year working life it could amount to £71,575 - a valuable nest egg.

Paul Goodwin, director of workplace savings, Aviva says:

"In the current economic climate, families are clearly willing to support members of their extended network of family and friends. However, while it's good to see how families are pulling together, people need to ensure that they are not sacrificing their own financial wellbeing, particularly in the long term.

"The stark truth is that people are not saving enough for retirement. However, by providing their families with £442 annually, over a working lifetime of 40 years they could effectively be giving away two thirds of the typical UK pension pot.

"Moreover, if people were to place this amount into a workplace pension which was matched by their employer, it could amount to more than £70,000 over 40 years. While we obviously don't expect people to stop supporting their families, we would urge them to think about the types of support they can provide and decide whether they can help them in different, more practical ways."