Gen Z: Parental influence and navigating ‘strings-attached’ finance
Sandwiched between Millennials and Generation Alpha, Generation Z (Gen Z or ‘Zoomers’) are the first demographic cohort to have come of age with technology at their fingertips from an early age.
These ‘Digital Natives’, born between 1997 and 2012, are expected to make up 30% of the global workforce by 2030, according to the World Economic Forum – so it’s vital that, as advisers, we understand the legal and cultural factors informing their decision making so we can support them in the years to come.
To help us do this, we partnered with Opinium to commission an independent survey of 2,000 Gen Z adults (aged 18-27 years) and 2,000 of the (non-Gen Z) general population to unpack their generational perspectives on wealth management and life’s major milestones including marriage/civil partnership, having children, home ownership and travel.
This article is the first article in the series, which forms part of a longer report on wealth management and life planning for Gen Z and focuses on parental influence and financing that comes with conditions, often referred to as 'strings-attached' financing. Parental influence and guidance remains a central pillar in Gen Z’s financial and life planning, with the 'Bank of Mum and Dad' playing a pivotal role in supporting major life events such as education, buying a home, or starting a family.
Our research reveals that Gen Z adults are most likely to reach out to their parents for financial advice. Nearly two-thirds of Gen Z adults (64%) seek advice or information from their parents when making financial or investment decisions, compared to just 13% of Millennials or older. Asking parents surpasses all other sources such as banks or financial institutions (35%), online resources other than social media (25%), friends (24%), and financial advisers or professionals (23%).
This reliance on parental support underscores the economic challenges faced by Gen Z, including rising living costs and stagnant wages, which make achieving financial independence more daunting. Increasingly, the housing ladder is slipping out of reach for many independent young buyers: half of first-time buyers (52%) had to rely on ‘Bank of Mum of Dad’ in 2024, according to estimates from estate agent Savills.
It is therefore little surprise that, when planning for significant life expenses, such as buying property, planning a wedding or buying a car, nearly seven in 10 Gen Z adults (68%) say it is likely that they would receive financial support from their parents. To a slightly lesser degree, they point to support from grandparents or other family members (both 45%) and friends (39%). However, among those Gen Z adults anticipating financial help or inheritance, more than half (56%) are acutely aware of the implicit strings attached to parental assistance. They recognise that accepting financial help often comes with expectations or obligations, which can influence their decisions and autonomy. This dynamic creates a delicate balance between gratitude for the support and a desire for independence.
Navigating this ‘strings-attached’ finance can be challenging and a common cause of
family conflicts. Issues can arise among siblings of different ages who need money at different times and there can be conflict around children’s partners who join the family with less wealth. Tensions can easily arise when trying to manage relationships in a family and there is money involved. Parents often place conditions on the gifts they make to protect assets, not to stop children being able to use them. They want to make sure that if something goes wrong in their relationships or their lives, the assets aren’t lost for the family.
Structuring the Bank of Mum and Dad
There are a number of solutions that parents and their children can explore together as part of their conversations about the family’s wealth, minimising disagreements, protecting monies gifted, and helping Gen Z get ahead. These include:
A Declaration of Trust
This legal document records the beneficial ownership of the property, ensuring that owners understand who is responsible for what. It can be particularly helpful when a child is buying a property with a partner, helping to protect each of their respective contributions in the event of a relationship breakdown. However, in the case of a divorce, the family court is not under an obligation to divide the ownership in line with the Declaration of Trust (although it may choose to follow it, depending on the circumstances).
A Discretionary Trust
The benefit of establishing a family discretionary trust is that any funds or assets transferred to the trust can be held for the benefit of children or grandchildren, but parents can act as trustees or co-trustees alongside family members, friends or professional advisers. Whilst those that settle the assets in trust cannot benefit from the assets themselves, they can retain control of them, providing both flexibility and a level of protection. Family trusts also facilitate inheritance tax (IHT) mitigation for parents (who settle assets in trust) while enabling their children (who are the beneficiaries of the trust) to plan for major expenditure.
When parental support becomes the primary means for young people to purchase a home, it is very important to carefully consider all options. The process involves more than simply transferring money for a property purchase. To prevent disagreements on how the funds should be utilised, we recommend utilising official agreements and processes, which can significantly streamline and clarify the transaction for all parties involved.
Family Trusts: What you need to know
Spotlight on inheritance tax (IHT)
Although a family trust can be funded in different ways, parents with excess capital should consider using their available IHT nil band rate (currently £325,000 per person) – the maximum amount an individual can transfer into trust without triggering an up front IHT charge at the rate of 20%. For example, a married couple could jointly settle £650,000 into trust without any immediate IHT charge.
Where a settlor survives their gift by seven years, the entire value of it will fall outside of their taxable estate for IHT. Any growth in the capital value of the fund from the date of the gift is also held outside the settlor’s taxable estate. After seven years, the settlor’s nil rate band refreshes in full so they could reuse this, including by gifting another £325,000 into the same trust.
If a settlor dies within seven years of their gift, the value of the gift is included in the value of their estate for IHT purposes. In certain situations, if they survive the gift by at least three years, their estate will benefit from taper relief, reducing the IHT rate charged on a sliding scale. The advantage of putting funds into trust for the benefit of your children/grandchildren is that you can start your ‘seven year clock’ running without handing over control of the funds to them until the trustees, in their discretion, decide to benefit them.
Many other factors are relevant to setting up a trust, including capital gains tax (CGT), stamp duty land tax, income tax, gifts with reservation of benefit and ongoing administrative costs. Advice should be taken to ensure all elements are considered for an individual settlor’s situation, particularly as the tax position for trusts can vary significantly if minor children are involved.
Distributions for a property purchase
Parents can withhold trust distributions until they – as trustees or as settlors guiding the trustees by their written letter of wishes – are satisfied their children will use the funds responsibly. Distributions can be structured in several ways, including:
- An outright distribution of cash to a beneficiary
The beneficiary is free to spend this as they wish. This involves the least amount of control and requires the highest level of confidence that the beneficiary will use the funds wisely. - A loan (interest-free and repayable on demand) from the trust to a beneficiary
The beneficiary can use the funds to buy a property directly, while the trustees maintain control over the funds loaned by the trust. - Co-purchasing the property with a beneficiary
The trustees would hold a direct interest in the property, giving significantly greater control, but at a higher cost. - Purchasing a property outright (i.e. without the beneficiary involved as a co-purchaser)
The beneficiary could be given the right to occupy the property as their main residence rent-free, or for a nominal or market rent to claim principal private residence relief for CGT purposes. This involves the highest level of control as the property will not belong to the beneficiary. An advantage is that the property will not form part of the beneficiary’s taxable estate.
As Gen Z continues to shape their financial futures amidst economic challenges, leveraging structured financial support can provide both security and independence. It is vital for all parties involved to seek professional advice to ensure informed and effective decision-making.
Read the report in its entirety.
