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Loans -
The rising cost of having children
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The cost of raising a child is thought to be around £180,000 and rising faster than house prices. From birth until the age of 21, the outgoing associated with each individual offspring will almost amount to enough to buy an average priced house outright. It has previously been thought that the primary school years and time spent at university are the most expensive periods, with the rising costs of childcare and introduction of tuition fees. The high costs mean that usually both parents have to work in order to raise their children comfortably until they leave home, however new research has found that even when they have flown the nest, the costs do not necessarily end there.
A survey recently found that grown-up offspring are still costing their parents an average of £12,000 each year, showing that just because they are supposed to be fending for themselves, doesn’t mean the familial purse strings can close.
The second annual Scottish Widows savings and investment report revealed that around 55% of parents have loaned of permanently given their children of grandchildren thousands of pounds. This is a 16% increase on last year’s figures and reflects the growing cost of living and subsequent financial strain placed on those who are starting out on their own. Grown-up offspring are now being given an average of £12,610 and the total “savings sap” – the money lent or given to children (grown-up or otherwise) by their parents – amounts to a total of 67 billion pounds.
The same survey last year showed that 50% of those in their 20s and 30s thought it was much easier for their parents’ generation to save for retirement, and the same percentage thought it was also simpler for their parents to save generally.
This year’s research revealed that out of the children given money, whether in loan form or as a gift, 42% were using it to pay off existing debt, such as credit cards or personal loans. This is a marked increase nearly doubling last year’s figure of 22% and reflecting the change in the credit market. Additionally, 29% of those receiving money said they would be using it to buy property, down from 32% the same time last year.
Other uses for the money include paying for living expenses and education fees. When the university tuition fees were introduced in 2006, it was thought that around a third of parents were willing to pay for them themselves for the entire three years at a cost of around £3,000.
"Baby boomers, now mostly retired or entering retirement, have just about saved enough to fund their retirement but they are facing their funds being depleted by their offspring," said Professor Merlin Stone, of Bristol Business School. "The current generation of young adults are facing increasing levels of debt as well as steep house prices, so are increasingly turning to their parents for hand-outs to help with these financial drains.”
"With housing transaction volumes falling, the economic situation perhaps weakening and financial institutions tightening their lending criteria, it's not surprising to see that what was the joint largest area of help -- housing purchase/ deposit -- remaining static, while debt pay-off has jumped into the lead,” he continued.
The survey also revealed that the handouts do not stop at one: over half the parents who had already given their offspring money thought they would have to do so again in the future. On average, parents in this group have already shelled out around £14,525 and expect to part with a further £11,585 in years to come.
Anne Young, a savings expert at Scottish Widows, remarked: "It seems that although people could well be tightening the purse strings at a time when the credit crunch could affect finances, adult children are still managing to extract what they can from Mum and Dad. Both the amount of money given and the number of children 'sapping' has increased in the last year, to the extent that the overall 'sap fund' is well in excess of 60 billion pounds. That's a significant amount, and the glaring hole in parents' finances needs to be replaced, or prepared for in the first instance, as the problem is clearly not going to go away."
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