THE BANK OF MUM AND DAD

‘We are family’ is very much the way forward for many young people’s finances, explains Bill Jamieson

Family finances can put a strain on parents

Families: we spend half our lives trying to break away from them and the other half keeping them together. Public commentary on the family is all too often limited to earnest handwringing on break-up: emotional pressures and stress, rebellious teenagers and parents who care too little – or care too much.

Yet the contribution of families to our economic life is substantial. We have tens of thousands of family businesses, and legions of entrepreneurs who could not have blossomed without the help of a bequest or legacy from a relative.

Far from the family declining in importance it is more influential than ever in providing a helping hand for the next generation. And this is critically the case in house purchase and support through university and further education.

Recent research from the Bank of Scotland finds than one in ten parents have always expected they’d need to lend money to family members, and have prepared accordingly.

Nearly one sixth of Scottish parents (15 per cent) believe their children will need substantial financial support from their family to buy their own home. Its research also reveals that a quarter of parents (25 per cent) are happy to help their children with the cost of buying a house.

A quarter of Scottish parents (22 per cent) are also happy to help their children with the cost of university. And of those planning to attend university, 15 per cent plan to fund their studies using money from their family.

Millennials are most likely to borrow from their parents as over four in ten millennials aged 25-34 and 18-24 year olds admit to borrowing a substantial amount from the Bank of Mum and Dad.

The research reveals that Scottish parents have loaned more than £1.9 billion to their children, with almost a fifth (16 per cent) of parent lenders loaning over £10,000 to their children.

Borrowing small amounts is common too, nearly a quarter (23 per cent) of Scottish parents have loaned money up to the value of £500 to their children.

Looking at the picture UK-wide, ‘the Bank of Mum and Dad” has become a critical force in the housing market. Research by Legal and General and the Centre for Economics and Business Research estimates that parents now fund more than a quarter of house purchases as young people and first-time buyers struggle to get on the housing ladder.

A helping hand from Mum and Dad has always been a feature of the housing market. But the scale of this helping hand has grown substantially.

Parents have become the equivalent of the ninth-biggest mortgage lender in the UK, lending more than £6.5 billion last year, making them bigger than Clydesdale Bank in the mortgage market and only a touch behind the Yorkshire Building Society at £6.6 billion.

All told, parents helped to provide deposits across the UK for more than 298,000 mortgages in 2017, representing 26 per cent of the transactions. The amount of money handed over from the Bank of Mum and Dad rose by 23 per cent last year, reaching

“Younger people don’t have the opportunities that the baby-boomers had

an average £21,600. Most of the money goes towards a deposit and the vast majority – 70 per cent – is used by millennials under the age of 30.

Earnest forebodings about ‘the death of the family’ are apt to take too little account of the role of the family as a supportive economic unit. And progressive commentators often wag a disapproving finger at the family unit as a contributor to wealth and income inequality.

But as Nigel Wilson, chief executive of Legal & General, points out, ‘The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder. The intergenerational inequality that creates the demand for Bank of Mum and Dad continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education.’

Family support here plays a positive role in helping their children get on in life and thus mitigating inequality between the generations.

None of this should obscure the fact that we have a shortage of housing that is acute in many areas, driving up house prices. The report says the amount of lending by parents is more evidence that the UK housing market is failing to work properly.

But financial support is not confined to parents providing help for a deposit on a house purchase. Separate research from the Bank of Scotland finds that the Bank of Brother and Sister is almost as generous as Mum and Dad. Its How Scotland Lives research finds that Scottish siblings have loaned a total of £616 million to their brothers and sisters. Almost half (48 per cent) have loaned up to £500 but almost one in ten (7 per cent) have loaned more than £10,000 to a brother or sister.

Borrowing from grandparents is markedly lower - only three per cent of Scots have borrowed a substantial amount of money from their grandparents. This could be because many grandparents are struggling with modest pension incomes or because almost half of borrowers, according to the survey, feel guilty about borrowing.

No less important a contributor to the overall economy is the family business. According to the Scottish Family Business Association there are some 60,000 of these, accounting for roughly half the Gross Domestic Product created by private enterprise. Some 69 per cent of SMEs (small and medium enterprises) in Scotland are family owned.

Now this can be a turbulent sector, with a notable casualty rate and many small firms troubled with conflicting aspirations of young family members and problems of succession. Only 33 per cent of family businesses survive into the second generation. But despite these inevitable tensions, almost two thirds (61 per cent) of family businesses are more than eleven years old. And not all family businesses are minnows: larger companies include drinks giant William Grant & Sons, motor retailer Arnold Clark, Edinburgh Woollen Mill and Macdonald Hotels.

Now family businesses can flounder and fail, and family ties dissolve and break under the pressures of modern life and a culture that can over-estimate atavistic individualism. But families do make a substantial and positive contribution to our material well-being and to the enhancement of life opportunities for the young.