Bank of Mum and Dad PLC

Living my days 6 minutes at a time as a solicitor apprentice does not quite equate to the epitome of youth, but I still represent a percentage that makes up my generation – Generation Z. 

According to the Financial Reporter, house prices are sitting at 8.8 times the average earnings. So how might Gen Z, as a generation seeking financial stability, stand a chance against the pressures of buying a property, getting married and having kids, among other significant financial burdens? Well, hello bank of mum and dad PLC.

In a recent survey conducted by Charles Russell Speechlys, our research found that the ‘bank of mum and dad' is a significant factor in Gen Z's financial planning, with many expecting parental support for major life events. However, this financial dependency is often accompanied by perceived expectations and pressures to adhere to parental advice.

Our findings show that nearly two-thirds (64%) of Gen Z adults go to their parents for advice when making financial or investment decisions. Why might this be? Well, for me, when I sought financial advice from my parents, it was solely for the reason – they’ve been there, done that. My first bank account? Same account as my father. First job? Same industry as my mother. First access to savings? Thank you very much mum and dad. 

As Gen Z now look to buying their first properties and getting married, how involved is the ‘bank of mum and dad’ and will there be strings attached? 

Strings Attached

Our data tell us that just under half of Gen Z adults would feel pressured to follow financial advice from their parents. The youngest of this sample (18–20-year-olds) are even more likely to take advice from their parents. Perhaps this is indicative of times to come?

Whilst Gen Z may feel that parental help comes with strings attached, for parents, there can be tension between wanting to help their children financially and protecting the sums that are given. 

Working in the Private Client team, we often have to consider possible “strings attached” when discussing gifting in lifetime and on death. When drafting Wills for clients, we offer certain levels of protection of wealth, for example, by using trusts aimed at protecting inherited money so it stays in the bloodline. A discretionary trust may be accompanied by a letter of wishes which sets out the circumstances in which a parent envisages funds coming out of the trust to a young adult child. These wishes mirror the conversations parents would have had with children if they were making gifts in lifetime.  Common ‘strings’ include suggestions that a child should consider a cohabitation or pre-nuptial agreement if entering into a relationship or buying property.  Other more entrepreneurial children may be encouraged to write a business plan or seek alternative funding before funds will be given from the trust to set up a business. 

Gifting

Due to unbalanced inflation, it has become increasingly harder for Gen Z adults to be able to experience these major life events such as buying a property and getting married. Being able to gift, abiding by the specific tax exemptions, is a key way of ensuring your wealth is not taxed and also to give your children a greater chance of achieving the life you wanted to provide for them. 

There are two certainties in life: death and taxes. So, Mum, Dad, what can you do to help your children minimise the latter? Each tax year, you can give away capital up to £3,000 free of inheritance tax. You can carry this onto the following tax year, but only one tax year. For gifts of capital in excess of this annual allowance, you must survive 7 years before the value of the gift falls out of your estate for inheritance tax purposes. 

Now, traditionally, first comes love, then comes marriage, then comes a baby in a golden carriage. According to our data, 2 out of 5 Gen Z adults don’t want to get married as some Gen Z’s view weddings as expensive and a huge risk to take financially. To help offset the financial burden, there are additional tax-free allowances you can give to someone getting married, with the amount varying depending on your relationship, so that you can give £5,000 to your own offspring, £2,500 to your grandchildren and £1,000 to any other person.

There are other tax-free gifts which can be made from income on a regular basis, and we often see parents making such gifts to children well beyond the Gen Z age range. As with all these things, it is important to get advice about how best to structure such gifting and also how to manage the expectations of those you are helping. The ‘bank of mum and dad’ can be a significant source of tension if not managed well.