Intergenerational wealth – the real gift of the Bank of Mum and Dad

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the Hargreaves Lansdown Savings & Resilience Barometer from January 2023, showing intergenerational wealth, the real gift of the Bank of Mum and Dad.

Key points from publication:

• • The higher the level of education your parents had, the more financially resilient you’re likely to be. If they owned a property with a mortgage when you were a teenager, you’re also likely to be more resilient.
  • 48% of people whose Dad had a degree have enough cash left over at the end of the month to be resilient – compared to 29% of those whose Dad left school before the age of 15 (the figures are 47% and 28% for Mums).
  • 47% of those whose Dad was employed when they were growing up are on track for a moderate retirement income – compared to 24% of those whose Dad didn’t work (the figures are 46% and 29% for Mums).
  • 50% of those whose parents owned a home with a mortgage as teenagers now own a home, compared to 19% of those whose parents rented.

Figures from the HL Savings & Resilience Barometer, January 2023

Sarah Coles says:

“We owe so much more to the Bank of Mum and Dad than we’re ever likely to admit to them.

“It’s most obvious when it comes to getting onto the property ladder, when a one-off gift can make all the difference, but they can impact every corner of your finances – even when they don’t hand over a penny.”

Bank of Mum and Dad:

“Growing up with parents with a higher income is always going to make it more likely that you’ll land on your feet, because social mobility moves at a snail’s pace.

“OECD figures that show it takes an average of five generations for those born in low-income families to earn the average income.

“Some of the parental measures in the Barometer tend to be a proxy for having parents with money, like whether they were employed or not, and whether they owned a home with a mortgage or rented.

“So it comes as no surprise that those whose parents owned their home are far more likely to be financially resilient from all sorts of measures, from having enough cash at the end of the month (39% vs 24%) to having enough savings (75% vs 52%) or being on track for a moderate pension income (54% vs 29%).

“Having parents who worked when you were growing up also makes a major difference. A working Mum means you’re more likely to have enough savings (68% vs 41%), surplus income (35% vs 23%) and to own a home of your own (39% vs 19%).

“A working Dad means you’re more likely to be on track for a moderate income in retirement (47% vs 24%).

“A huge element of this comes down to the fact that wealthier parents are more likely to be able to afford to pass money on.

“This includes offering cash to help their offspring onto the property ladder, but there are so many more ways parents can help if they have a bit of wiggle room in their finances.

“Setting up a Junior ISA, saving so you can provide support through further education, even paying into their pension when they are children can all make a major difference.

“It doesn’t just put them on the front foot financially, it also makes goals far more attainable: knowing you will receive financial support for education makes going to university a much more realistic goal.”

Support beyond cash:

“However, the impact goes beyond the money itself.

“Having parents with enough money also offers an element of security, so that those whose parents are financially resilient can consider taking more risks with their career, on the grounds that if something goes awry, their parents will help pick them up.

“They also offer role models into professional jobs – sometimes through helping put them in touch with someone in a specific field, but also by showing their kids a workable path to these roles.

“Those whose parents remained in education for longer are also able to offer more academic support growing up. It’s one reason why if your parents were professionals, your odds of being in a professional occupation are six times better than someone from working class origins.

“Parental education is therefore likely to improve your earning potential – so you have more surplus income and more savings.

“When it comes to buying property, if your parents rented, you’re more likely to rent as an adult.

“There’s no doubt this owes a great deal to the fact that your parents have no home to remortgage in order to provide a deposit for you.

“However, it also owes something to the fact that we learn what’s normal from our parents, and can often follow their example.”

Risk:

“The one area where the wealth of our parents works against us is when it comes to the future affordability of the debts we’re carrying.

“How affordable our future debt payments are tends to be inversely proportional to income, because wealthier people feel more confident they’ll be able to pay their debts off, so they borrow more and do so at a variable rate of interest.

“It’s why we see future debt affordability fall among those with characteristics associated with having more money in adulthood – such as those whose Dad went to university (21% have debts that’ll be affordable in future, compared to 35% of those who left before they were 15 – or never went to school at all) or who were employed (27% have affordable debts compared to 40% of those whose Dad didn’t work).

“However, there are other characteristics less tied to income which mean we’re less likely to have affordable debts in future.

“This includes those whose parents had a mortgage (19% compared to 39% of renters), possibly because debt was a part of life growing up and so has been embraced as part of it now.

“Meanwhile, the offspring of self-employed parents have very low debt affordability (19%) – possibly because they grew up in a household where financial risk-taking may have been more of a normal part of life.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay