How to advise the Bank of Mum and Dad

  • Learn about how advisers can help parents pass down wealth
  • Gain an understanding of the financial challenges facing young people
  • Grasp the potential implications with gifting
How to advise the Bank of Mum and Dad

In 1986, Warren Buffett said that parents should leave their children “enough money so that they would feel they could do anything, but not so much that they could do nothing”.

Although many will agree with the sentiment, in practice the advice is somewhat impractical. Pondering how to pass on billions of dollars is a far cry from the reality for other parents, who simply want to lend a helping hand. But what Mr Buffett does manage to capture is the importance of balance.

Striking this balance is becoming more difficult. A number of societal changes emphasise the difficulties faced by younger people in emulating the financial path of their parents. Chief among them is that the gap between property prices and earnings has widened significantly in the past few decades. Meanwhile, the demise of final salary schemes and increased life expectancy rates have made saving for retirement harder than in yesteryear.

Critics may say younger people have unduly adopted a ‘live for today’ attitude, but in truth, attempting to juggle income to repay student debt, save for both a house deposit and retirement, while still leaving ample for day-to-day living is no enviable task.

For the more fortunate, the ‘Bank of Mum and Dad’ is increasingly filling the void. But these arrangements can bring difficulties of their own, not least for financial advisers.

They must weigh clients’ desires for their offspring against the risk that this emotional pull will end up draining away assets and, ultimately, well-being.

“They’ve got to achieve the right balance,” says Justin Urquhart-Stewart, co-founder and head of corporate development at 7IM. “The problem is the nation has changed. A generation ago our parents lived and worked until they were 65 and after that they lived five years and popped their clogs. Now, owing to the fantastic advances in medicine, we retire at a later date but have another 30 years to go.”

Home comforts

The maxim ‘an Englishman’s home is his castle,’ still holds true. For the majority, buying a home is viewed as an essential part of adult life. However, changes to the housing market have made this increasingly difficult – in the absence of outside help, at least.

At the end of 1977, the average house cost £74,000 in today’s money. By 1987 this had risen to £116,000, before falling to £104,000 a decade later following the slump in the early 1990s. 

The next 10 years saw a sea change in the property market, largely powered by banks taking a more flexible approach to lending. A dip followed the 2008 crash, but prices quickly resumed their rapid climb in many parts of the country. 

According to data compiled by the Financial Times, London house prices have risen almost 80 per cent in the nine years following the crash. Even the average UK property value has tripled in 40 years. As a result, more adviser clients then ever are starting to look at offering their children material financial assistance.

  1. What does Mr Urquhart-Stewart describe as "ridiculous"?

  2. According to Mr Wilson, what do consumers not necessarily understand?

  3. Mr Savage has seen a marked uptick in consumers making what financial transaction?

  4. Mr Wilsons says that that using equity release for gifting is most prevalent for properties over what value?

  5. Royal London suggests couples that have contributed to the cost of a home should consider what?

  6. The Institute for Fiscal Studies (IFS) predicts that the average student will now leave university with debts in excess of what figure?

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You should now know…

  • Learn about how advisers can help parents pass down wealth
  • Gain an understanding of the financial challenges facing young people
  • Grasp the potential implications with gifting

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