Mum and Dad’s bank fuels financial inequality

Think about parenting papers and an increase in the ownership scale – those with the cash on hand are preparing their kids for a deposit for their first home, sometimes even step two as well.

But mum and dad’s banking doesn’t end there these days, with more than half of UK parents contributing towards college fees, half allowing adult children to stay at home rent-free, and nearly the same number buying a car.

A quarter of parents still put money aside for their adult offspring in savings accounts and ISAs. One in ten even contributes to a pension, which is good if you can afford it.

“Parents have become their children’s guardians of adulthood; the wealth level of the previous generation ultimately determines which steps are achievable and which are not, ”says Becky O’Connor, manager of pensions and savings at the investment platform Interactive Investor.

“The scale of the aid also shows how the odds are stacked against those whose parents cannot help when it comes to accumulating wealth.

“It is an economic dependency that can have practical and emotional consequences, both for parents, who may not have anticipated having to support their children until adulthood, and for parents. children, who may want to be financially independent but cannot yet manage it. It also has social consequences, for example, when young adults delay having children or choose not to go to university. “

Researchers at Loughborough University believe more than 3.5 million young adults (aged 20-34) live at home in Britain, putting enormous strain on the family finances of low-income families medium, which is not lightened by the state.

The study, funded by the abrdn Financial Fairness Trust, found that the high cost of alternative housing, difficulty finding stable work, and precarious low incomes mean that many young adults feel they have no no choice but to live with their parents. The pandemic has highlighted and exacerbated the problems they already face, making the prospect of moving even more difficult.

But low-income families can lose up to £ 680 per month in universal credit (UC) and family allowance when a child leaves high school education or training and ceases to be considered ‘dependent’ – usually at the age of 18.

The biggest of these ‘sudden cliff-edge losses’ are experienced by working, home-owner parents – about one in four of those claiming UC – when their only or last child becomes non-dependent. . This is only partially offset by the amount an 18 year old can claim on UC, which is £ 257 per month. The benefit system assumes that young people will start contributing to household finances, but they often have limited means to do so, especially if they are not working.

Parents receiving social security benefits who live in rental accommodation are penalized for having adult children living with them, by a reduction in the payment of their rent – for those who benefit from universal credit, it is a question of ” a reduction of £ 75 per month if their child is 21 years old. or above.

The young adult should make up the shortfall, but if he is unemployed, he does not receive any rent assistance to pay this deduction. This means that either young adults have to use their basic benefit money or their parents have to cover the reduction – both risks for low-income families.

However, while it seems hard to believe in the face of such a sharp strengthening in the financial situation with each generation, the latest figures from the Office for National Statistics suggest that the UK’s wealth gap is not currently widening. . Or at least that wasn’t the case when the survey, examining Britain’s ‘total wealth’, was conducted between 2018 and 2020.

However, the gap is already huge, says Sarah Coles, senior personal finance analyst for Hargreaves Lansdown. “The richest 10 percent of households own 43 percent of all wealth, and the bottom half of the country owns only 9 percent of the wealth. The country’s mega-rich 1% has an average of £ 3.6million in assets. “

Basically, while pensions are a big part of the difference, the fact that you’ve reached the ownership ladder also creates a huge divide between the rich and the poor. Real estate wealth is the second most important component of overall wealth – at 36%.

“The wealthiest are much more likely to own their homes, while those with the fewest assets are probably having a hard time buying their first home,” Coles notes. “This is one of the reasons why older people have a lot more wealth than younger people, who have a mountain to climb to afford their first home.”

Financial wealth, including investments and savings, accounts for 13% of wealth, but richer households are much more likely to hold these types of assets. The richest 1 percent of households have more financial wealth than the poorest 80 percent of the population as a whole.

“Of course, a big part of this is the fact that they have more to invest to get started. However, they have also benefited from the growth in their investments over the years. It demonstrates the power of savings and money. ‘long-term investment,’ says Coles.

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