Financial support to younger members as a direct result of the pandemic
The coronavirus (COVID-19) pandemic has led to more people supporting younger family members financially. New research shows that 5.5 million older family members expect to provide additional financial support to younger members as a direct result of the pandemic.
Of these, 15% estimate they will provide an additional sum of £353 in financial aid. The most common reasons given for the payments were to help cover household bills, rent payments, allowing them to move back to the family home or paying off debts. This equates to £1.9 billion being given to younger family members needing financial support.
This COVID-19 specific support comes in addition to regular ongoing financial support provided by older family members. Over a third (39%) of young adults, around 3.3 million people, receive regular financial support from their older family members and depend on it to cover their monthly outgoings.
Older family members provide on average £113 a month, collectively giving £372 million to loved ones each month in the form of regular gifts. While the majority (31%) say they use monthly gifts to save for ‘big ticket’ items like a housing deposit, over a quarter use it to pay for everyday essentials (29%) and a similar number to pay their bills (27%).
Despite the significant sums handed out, 80% of older family members who gift money feel it is only natural to provide support to their younger relatives and are more than happy to do so. Of the 50% of adults who have received financial aid from a family member, many have sought further support during this year.
16% have utilised the government furlough scheme, 15% moved back to their family home to live rent free and 13% have taken out a one-off loan. The trend of younger family members moving back home is becoming more common, with the most recent data from the Office for National Statistics (ONS) showing that over the last two decades, there has been a 46% increase in the number of young people aged 20-34 living with their parents, up to 3.5 million from 2.4m.
While the majority (62%) of those who give away money do so knowing they can afford to maintain their current lifestyle, the research suggests that selfless relatives are occasionally making changes to their own finances to meet the expense. Over a third (38%) of those who gift money to family members have made sacrifices in order to do so. While many (31%) reported cutting back on some day-to-day spending in order to gift money, a fifth (21%) admitted they struggled to pay some bills having helped out a loved one.
Most parents and grandparents will gladly help out when they can, but people are often making personal compromises to provide this support. Giving money to a family member has the potential to be a special experience, but the key is not to lose sight of your longer-term plan.
There is a risk that people could be underestimating what they need to fund a comfortable retirement, and therefore it’s important to gift sensibly. Utilising property wealth, by either downsizing or using equity release, can often be helpful here as it allows the opportunity to give a living inheritance without touching your income.
These decisions aren’t easy, and the tax rules mean gifting money can be complicated. When gifting, HM Revenue & Customs stipulates you must be able to maintain your current standard of living from your remaining income to take advantage of tax exemptions and there are tax implications for anything gifted over the £3,000 annual allowance.
For more information on ways to help family members financially please contact us.