- Around £17billion is handed out by parents to their children annually
- Chiefly the is cash given by parents over 50 to children in their 20s and early 30s
Parents have long been handing over their hard-earned cash to children who are well into adulthood.
And the so-called Bank of Mum and Dad is now one of the most generous financial institutions in the land – so much so that it is now said to be fuelling inequality.
Around £17billion is handed out by parents to their offspring in gifts or informal loans annually, according to the Institute for Fiscal Studies think-tank.
Most of the cash has been given by parents over the age of 50 to children in their 20s and early 30s, with nearly a third of young adults receiving at least one substantial transfer of £500 or more over any eight-year period.
Transfers were also ‘unequally sized’ with the largest 10 per cent of payments surpassing £20,000, while the highest 5 per cent made up more than half of the total amount received over 2018 to 2020.
The IFS noted such payments were ‘unsurprisingly’ exacerbating existing wealth inequalities among younger people, highlighting that children of university-educated homeowners received around six times more in cash transfers during their 20s and early 30s than the children of renters.
Amounts given were also higher for those who come from wealthier families and are themselves well paid, with the top fifth of young adults by income receiving amounts 26 times larger than those among the bottom fifth.
The highest-income fifth received an average of £6,300 over eight years while the lowest-income fifth received an average of £240.
The IFS highlighted that transfers of wealth from parents to their children were ‘strongly connected’ to buying houses or getting married, although the lowest third of earners were more likely to report using gifts to buy a new car, pay off debts or fund their education.
And youngsters were less likely to receive gifts in response to negative events such as losing their job or separating from a partner.
The report also exposed disparities in gender, with women being more likely to receive gifts of money, especially when younger, as well as across regions with those in the South West more likely to make transfers to children than elsewhere in the UK.
Ethnicity also played a role with white young adults receiving substantial gifts more often than those from black or Asian backgrounds.
‘Substantial intergenerational transfers happen when people – particularly those with richer parents – are in early adulthood and are buying their first home or getting married. While these transfers are important assistance for some, they are very unequally spread,’ said IFS research economist Bee Boileau.
‘Policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next.’
