Is the Bank of Mum & Dad the Safest Bet?

The economic crises and constraint of the last few years has forced just about everyone to get into the habit of tightening their wallets and finding ways to be more financially responsible. Even those consumers who are fiscally responsible found that the recession of 2008 left them learning new ways to be frugal and even more careful with their money and how they chose to spend it.

Recently, there has been an ongoing argument that children are becoming even more reliant on their parents to help and support them financially. Of course, there are a variety of different schools of thought related to why this is happening and how we can make changes to eliminate, or at least reduce, the amount of reliance grown adult children are having on their parents. One thing to keep in mind when discussing sensitive family issues such as this is that not every parent manages their parental responsibilities in quite the same way and even furthermore, parents can really only do so much to manage how their children react to the everyday struggle of real life. That being said, adult children will essentially live their lives as they see fit, whether it was the way in which they were raised or not. But the bank of mum and dad will always be there?

Perhaps one of the biggest things to keep in mind when focusing on how children have grown to be so reliant on parents is the way in which parents now help their children, which is quite different from years and decades passed. The method of helping has certainly evolved and has grown to include much larger expenses and costs. It is no longer just that parents give their children a car, albeit a used one, for their birthday when they have reached the age old enough to drive. Now, parents seem to be taking financing to a new level. They are co-signing for vehicles even when their children are old enough to do so themselves. Some parents are even taking it one step further and are taking on the responsibility as guarantors for mortgages for their children.

It is not just parents helping their children with their first home purchase, but the UK government has also developed a new program to help aid first time home buyers. The ‘Help to Buy’ scheme is an equity loan secured by the Government in the amount of up to 20 percent of the overall purchase price of a new build property. When the borrower decides to sell the property, they must then repay the equivalent share of the sale price. So, the amount returned may not be the same as the amount borrowed, depending on the resale value of the property. The Help to Buy program comes in two different varieties. The first of these is the interest-free loan opportunity outlined above. The second allows the Government to function as the guarantor for a portion of the borrower’s debt.

The mortgage guarantees provided by Home To Buy are open to first-time home buyers as well as home movers. The purpose of this part of the program is to help those buyers who do not have enough money to put down as a deposit on their home. If this is the only thing preventing the borrower, the Help to Buy program is likely to aid in the efforts to raise enough money for the initial deposit. Of course, this would potentially help those parents of adult children who are looking to purchase a new home. Instead of the parent providing the guarantee for the borrower, the responsibility could be that of the Government instead. The program is set to run up until March 31, 2016 depending on availability of funding.

This is just one way that the government is, albeit inadvertently, helping parents from financially supporting their adult children long into their adult lives. While we can blame children for relying on their parents too much and for too long, it may be the exact culture that we have created that is prompting children to behave in this way. When the older generation of consumers were growing up, they were required to earn their own way. There were very few hand outs and even less potential to rely on parents for financial support. However, that is just simply not the culture of today’s world. In today’s society, immediate gratification is needed and wanted at all times. So, when our adult children are looking for something but do not yet have the cash or deposit required, they look to others, most notably their parents, to help them instead of waiting until they can purchase independently. Unless our overall culture in society takes a drastic turn, it does not seem like this mentality or attitude is going anywhere.