Thursday, April 16, 2009
According to the third annual Scottish Widows Savings and Investments Report, the challenging economic conditions are not stopping adult children from gaining financial support from their parents.
56 percent of parents with adult children are said to have either given or loaned their children or grandchildren a significant sum of money. The average sum that parents are handing over stands at £11,776, which equates to £72.5 billion.This marks an 8 percent increase on the £67 billion in 2008.
The report also revealed that 89 percent of parents who have given or loaned money to their children or grandchildren had to turn to their savings in order to do so. In turn, 17 percent now have increased levels of debt. 22 percent have had to reduce their daily spending, 27 percent are unable to save as much as they had been doing, and 11 percent have had to stop saving altogether.
As the recession worsens, it comes as no surprise that 46 percent of parents who have given or loaned their children or grandchildren money do not think that they will be able to replace it. For the 36 percent who had planned to utilise the money during their retirement, they may find their future finances a struggle as a result. However, the lucky parents that do think it will be possible to top their savings back up believe that this will take over two years and four months on average.
Head of Savings and Investments at Scottish Widows, Gordon Greig, commented: "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."
The main reason behind parents giving or lending money to their adult children or grandchildren is for them to pay off debt (38 percent). Second to this, is to assist them in purchasing a property (30 percent). Finally, many adult children or grandchildren require the money to cover general living expenses (24 percent).
Many parents with children aged 16 and over, who have found themselves providing monetary hand-outs in the past, are expecting to have to do the same again in the future (49 percent). These parents believe that they are looking at parting with another £12,564 on average, suggesting that they are half way through the ‘giving cycle’. On the other side of the coin, a significant proportion of parents (55 percent) are unable to afford to provide their children or grandchildren with financial support.
.........................................................................................................
Parents who have helped out offspring considerably, and who find themselves struggling as a consequence, could consider taking out a secured loan to consolidate their own debts. Alternatively, young adult homeowners could consider a secured loan to pay off debt rather than turning to their parents for help. One of many options to consolidate debt, borrowers should remember that consolidating debt may increase the amount paid back overall and extend the repayment period of debts.
