Parents and grandparents are keeping a stockpile of cash to provide financial help to their children and grandchildren if they need it. While you may want to keep some of your savings to one side in case they are needed, it’s important to assess your own finances and how best to use your capital too.
Research from Saga Savings suggests that more than half of over-65s are keeping a secret savings account in case children need financial help. On average, parents have £11,500 tucked away, with a collective value of £11 billion. With almost six in ten parents believing younger generations face more financial pressures than they did at the same age, it’s not surprising they want to offer some support when they can.
Whether adult children are struggling to cover day-to-day costs or make a significant financial decision, such as stepping on to the property ladder, a little financial help can be valuable. The research found:
- Nearly half of parents dip into savings at least once or twice a year to help their adult children
- One in ten over-65s say they had gifted an average of £5,000 or more in the last 12 months
- Three quarters said they will always feel a responsibility to ensure their children are financially secure
But before you put your hand in your pocket, you should consider these five things.
1. Assess the long-term impact on your finances
Does providing financial help have an impact on your finances?
In many cases, parents find they have the financial means to provide support and still maintain their lifestyle. However, it’s important to look at the long-term impact. Could making withdrawals for gifts to children, for example, affect your retirement plans? Or will it mean you have to make adjustments to your personal goals in the future?
Understanding the short, medium and long-term effects of taking lump sums out of your wealth to provide for adult children can help you make the right decision for you. It can give you the confidence you need to support loved ones whilst enjoying yourself too.
2. Review if you’re getting the most out of your savings
The research indicated that many parents have a separate stash of cash that’s earmarked for providing financial help when it’s needed. But is this money working for you?
Reviewing the interest rate of the savings can help you get the most out of your money whilst it’s sitting in your account. It’s important to keep in mind that interest rates are historically low, and inflation is outpacing them. In real terms, this means your money is losing value over the long term.
Locking your money away, without access for a defined period of time, can give you access to higher interest rates. Investing is also an option that may be worth considering, although this comes with additional risk. However, if loved ones may need financial help at short notice, these may not be the right option for you.
3. Look at the impact of financial help
Whatever the reason your loved ones need financial help, improving their financial health is likely to be your priority. It’s a gift that can have numerous knock-on effects, such as boosting mental wellbeing and confidence.
But what impact is your financial help having and are there better alternatives?
Exploring why they’re facing financial difficulty may lead to you finding a better way to support them. For instance, rent can often be higher than paying a mortgage for an equivalent property. As a result, a one-off lump sum may have a far greater impact than more regular gifts.
Of course, this isn’t the case for every family, and you should take the time to assess the impact on both you and your child.
4. Determine if you should seek legal advice
If you’re lending small sums every now and again, this isn’t a concern. But if you’ll be handing over larger figures, it can be wise to seek legal advice.
For example, if you’re going to provide money to use as a house deposit, legal advice can be useful. This is particularly true if your child is buying with a partner. If they split up in the future, the partner could be entitled to half the deposit used. Whilst you’re happy to support them as a family, how would you feel if the partner were still to receive a portion of it after they’d broken up? Seeking legal advice can put steps in place to avoid this.
If you expect the money to be paid back at a later date, legal advice can again be useful.
5. Decide if you should discuss your savings with children
The research found that around one in ten parents decided not to tell their children about the money they have put aside for them. There are likely to be many reasons for choosing to do this. But one in five admitted they were worried their child’s partner spent money irresponsibly and one in ten said they did not trust their child to tell the truth about how they would spend the money.
However, openly discussing the savings you’ve put to one side could be a positive step. It may mean you’re able to discuss how any gifts have the biggest impact possible and relieve financial stress they may be feeling. There’s no right or wrong answer here, you should choose the option you feel most comfortable with.
Get in touch with us if you’re thinking about offering financial support to your loved ones. Our goal is to give you confidence in the financial decisions you’re making, including providing financial help to children.