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New research has revealed that parents and grandparents who have lent their (grand)children money are owed an average of £12,700 as a result – and many will never see that money again.
The Bank of Mum and Dad, or Grandma and Grandad, is still very much open for business, with the latest figures from Prudential revealing that 11% of (grand)parents have even lent their offspring more than £20,000. What's more, many are well aware they won't be getting at least some of this money back, yet they're still happy to help.
Indeed, the survey found that more than two in five (44%) parents who have lent money to family expect they won't ever see the full amount again, yet 68% have already lent the money regardless, and 32% hope to be able to lend money to their children in the future.
Of those who've yet to lend money, 37% think it is unlikely they will be repaid, while only 28% expect to be repaid eventually. "As a parent myself I completely understand that most of us who are in a position to do so would want to provide financial help to our children," said Stan Russell, a retirement income expert at Prudential. "But as our research shows, in many cases this financial support ends up being gifts from Mum and Dad rather than the loans from the Bank of Mum and Dad they start out as.
"These written-off loans risk making a long-term dent in the finances of parents, often at the stage in their lives when they would like their money to be invested for the future and working hard for them in a pension. If the choice is between providing loans to their children or continuing to contribute to a pension, many parents could benefit from a consultation with a professional financial adviser before making that decision."
Still, while it's important to consider your own finances before lending any money that you may not be getting back soon or at all, additional figures show that young people are becoming increasingly reliant on such a 'loan' to be able to afford their own home. And with first-time mortgage rates going up, your offspring will only find it getting harder to stump up the money.
Aside from helping with a house purchase, which 39% of parents lent money towards, 28% assisted with the purchase of a car, while 21% lent to help with general living expenses and 16% lent funds for paying off student or credit card debt.
You may find some of these causes more worthy than others. Regardless, before you lend any money, make sure you have your own savings and retirement covered. If you think you may be asked for money in the future, consider setting up a specific savings account now so you'll have the £12,700 (or more) ready when your offspring needs it the most, with some help from a Best Buy interest rate.
Alternatively, consider asking your child to set up a regular saver or cash ISA that you could add into, so that you can build towards their future together. Or, if they're already struggling with debt, consider contacting a debt charity together, as they may need more than just an injection of funds to get back on their feet.
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