The phrase ‘the Bank of Mum and Dad’ was coined in Britain to highlight the growing number of adult children who ask their parents for money, food, shelter once they have finished university and are working. This is a phenomenon that is growing rapidly as more young people in the UK under the age of 35 are returning to their parents for financial help. What does this rising new trend mean for the future of consumer finance and what does it signal for the UK? We are going to find out the impact of what the Bank of Mum and Dad is doing to the perception of personal finances.
More parents are helping their children to buy a house
Getting on the property ladder is becoming even more important for adults who have just graduated from university and are working. The rise of property prices in some of the UK’s biggest cities like London and Manchester has made it absolutely critical to buy a home. Rental prices continue to rise, and less affluent people feel priced out of cities that they have lived in for their entire lives.
This has led to more people going to their parents for money to help them secure a deposit on a house. Some parents are even just purchasing homes outright for their children. More than £5bn has been lent to children by British parents, according to research. This is a staggering amount of cash that is being borrowed from parents and it shows the big amounts of cash swimming in the property market that is powered by parents, not children. It’s not just parents too. The BBC cited research that said 27% of new deposits for homes are funded by family and friends, and partners as well.
How is this affecting the finances of older people? This definitely has put a strain on the finances of parents because more parents are dipping into their retirement to help their children. One thing that can be done to solve this is for young adults to see the help their parents have given them as a ‘loan’ that they need to pay back once they are on their feet and have their home. For example, if a parent purchases a home for their child and the child wants to rent it out for rental income, a portion of the proceeds could be given to parents as a repayment.
More people are moving back home to live with their parents after graduation
Whether it is a few months or a few years after graduating from university, more people are moving back in with their parents for many reasons. The Office of National Statistics stated that one in four young adults from 20 to 34 have decided to move back home with their parents. One reason is the cost of living has skyrocketed in the UK in the form of rents, and others are trying to save up to buy a house and see the money they are paying in rent as a waste of money, for example.
Cost savings are clear when moving back in with parents from saving money from paying rent and not paying bills. However, not all parents are doing this – some parents are still trying to instil responsibility into their children by enforcing small token rental payments and telling parents to pay certain bills.
This is a trend that will continue because of the need of many people to get on the property ladder as well as to get out of debt. If this is something that has to happen, it should be done on a time deadline. For example, people could move back in with their parents to solve their financial problems for three months to six months for example, but not stay any longer than that.
What can young adults do to withdraw from the bank of me instead of their parents?
The way to solve this problem is to increase financial literacy and to let young adults know about alternative sources of cash such as consumer finance loans as long as they are in employment. Financial literacy is all about knowing how to manage your money and how to make money management a critical part of your life.
The first thing people can do is learn how to budget. Learning how to budget can be done in many different ways now from reading blogs on line, getting an accountant, and to downloading financial budgeting apps on your smartphones. The growth in the different ways of budgeting means that more people can find ways that suit them.
Saving is another element of personal finance that young people can work on in order to avoid going to the Bank of Mum and Dad. If you have plenty of savings stashed away, you will not need to approach your mother or father for financial help. Getting a big savings fund takes a lot of time, effort and hard work but it can be done as long as you are consistent in your approach.
Cut out unnecessary consumer spending is one of the best ways for people to maintain their personal finance standard. A lot of people find themselves in a bind in the middle of the month after receiving their wages and going crazy on shopping for clothes and going out. If you pace yourself and only buy entertainment related goods on a budget, you will not find yourself in a cash crunch.
Making the Bank of Mum and Dad a temporary fix, not a permanent home
The Bank of Mum and Dad should be seen as a temporary bridge to improving finances for young adults and not as the permanent home for adult children. Parents can help children by improving their knowledge of how to manage money, while adult children can also do more by budgeting better and looking for higher paying jobs that will provide them with the liquidity that they are searching for.
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