6 lesser-known financial benefits of the “Bank of Mum and Dad”

It is normal for parents to want to support their children financially, and it is for this reason that the “Bank of Mum and Dad” exists.

In recent years, the Bank of Mum and Dad has become synonymous with helping a child onto the property ladder, but that is rapidly changing as parents find new ways to help their children benefit from their wealth.

A poll, conducted by interactive investor, has revealed that parents are helping their children in many different ways. Here are six of them.

1. Help with university costs

The cost of university can quickly add up. Fees, food, rent, and any other expenses can amount to a significant sum. This is most likely why 58% of parents who responded to the poll have helped their children deal with these costs.

The average university debt in England is £45,000 and, according to a survey conducted by Save the Student, the typical student receives around £5,000 every year from their parents.

If you have a child at university, you may have to budget for these costs, especially as they’ll likely be studying for three years or more.

2. Buying a car or helping with car-related costs

After passing your driving test, getting your first car is a milestone that everyone fondly remembers. However, the insurance cost for newly passed drivers, plus road tax, fuel, and any other expenses that may occur are all extremely high and are on the rise.

It’s no wonder then that 46% of parents have reportedly helped their children with car-related costs.

MoneySuperMarket states that annual car insurance premiums alone for drivers between the ages of 20 and 24 were at an average of £857 in January of 2022. This is a substantial amount of money for younger people.

You could help by adding your child to your own insurance or by paying for bills such as road tax or insurance. Encouraging your child to have their car serviced regularly can also help keep costs down by spotting issues before they become serious.

3. Allowing them to stay home rent-free

Letting children stay home rent-free can be a massive help to them when they are trying to establish themselves. It is quite a common occurrence too, as 50% of parents said that they had provided this kind of support to their children.

While it is a helpful thing to do, it could also damage your own financial prospects. For example, energy prices are at an all-time high, so heating the house for an extra person can be an issue.

In addition, you might want to downsize to a smaller house once your child has flown the nest. These plans might have to be delayed if your adult child is living with you.

4. Make a payment into a savings account or ISA

Promoting good saving behaviour can help to teach children how to properly manage their money. This could be the reason that 28% of parents decide to make contributions to their children’s savings accounts.

Like paying into a savings account, contributing to your child’s ISA can help them develop proficient savings habits. This may be why the poll found that 23% of parents have paid into their child’s ISA. This has the potential to encourage younger people to make their own investments and can provide them with the security that they have a sum to fall back on in an emergency.

5. Providing childcare

The cost of living and nursery fees are on the rise, and it can be daunting for new parents to adapt and tackle these high expenses.

Indeed, MoneyWeek reports that the average cost of a full-time place in a nursery costs £263 a week, or £138 a week for part-time places.

It is for this reason that 14% of parents help their children with childcare costs, while 56% of parents provide other, non-financial assistance. Offering childcare can be a huge help to younger people, enabling them to channel their money into saving up for their own goals.

6. Contributing to their pension

Parents paying into their children’s pensions is a much less common occurrence as only 1 in 10 of those polled say they have done this.

It might seem unusual to pay into a child’s pension as they can’t access the money until at least age 55 (rising to age 57 in 2028) but it can be a very tax-efficient way to build a nest egg for your child.

Compound returns also play a factor here, as the money will typically have many decades to benefit from potential investment growth. However, as a child can’t access the money for decades, it may not be appropriate for shorter-term savings goals.

Get in touch

If you would like to discuss ways you can financially support your children so they can live comfortably in the future, please email us at info@harperlees.co.uk or call 01277 350560.  We’d be very happy to help.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.