Bank of mum and dad gifting £14bn each year

Bank of mum and dad gifting £14bn each year

Mum and dad bank Mother and son looking for new flats in central Birmingham

Mom and Dad’s bank leads to growing economic inequality in early adulthood. Credit: PA/Alamy

Money transfers from parents to their children reach £14billion a year, but not all children will receive the same amount – if at all – as mum and dad’s bank leads to inequality in the UK.

White young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults, for example, the Institute for Fiscal Studies think tank said.

Most transfers come from parents over 50 to children in their late 20s and early 30s. Around 30% of young adults receive at least one substantial transfer (£500 or more) over an eight-year period.

Learn more: UK house prices and sales continue to fall as interest rates rise

Children of college-educated homeowner parents receive about six times more in wealth transfers during their 20s and early 30s than children of renters.

Around £14billion is given or lent informally every year, almost all of it by parents to their adult children. It mainly helps to buy a house or is gifted at the time of marriage.

Bee Boileau, research economist and author of the IFS report, said: “Substantial intergenerational transfers occur when people – especially those with wealthier parents – are in early adulthood and buying their first house or get married. If these transfers are an important aid for some, they are very unevenly distributed.

Figures show the wealthiest will receive an average of £6,300, or 3% of their income over the same period, while the poorest will receive an average of £240, or 0.5% of their income over the same period.

In addition, more than half of the value of transfers is given by the fifth of the wealthiest adults – almost exclusively homeowners and disproportionately living in London and the South East.

Learn more: UK house prices have fallen by more than £12,000 since August

The study also showed that 1 in 10 white young adults receive a gift over a two-year period, compared to 1 in 25 black African or black Caribbean young adults and less than 1 in 30 Pakistani or Bangladeshi young adults.

Boileau said, “Apart from the benefits these transfers may bring, policymakers should therefore keep in mind the potential of these transfers to transmit inequalities from one generation to the next.”

Watch: How much money do I need to buy a house?

Download the Yahoo Finance app, available for Apple And android.

Leave a Comment

Your email address will not be published. Required fields are marked *