The natural order of things suggests that your parents look after you, financially as well as physically, before they set you on the road to independence.
Parents teach you the skills and attitudes you’ll carry with you for the rest of your life and they may even set you on your way financially by helping you invest in the stock market when you are young.
But what about when this natural order is turned on it’s head and the children end up bankrolling the lifestyle’s of their parents?
The bank for Mum and Dad
Although this role reversal may seem surprising, it is becoming a new trend and is expected to become far more commonplace as life expectancy and retirement savings are stretched to the limit.
No child sets out in life with a plan to bankroll their parent’s day-to-day expenditures. Nor do parents build a retirement strategy on the salary of their son or daughter. However, economic shocks can cause financial plans to fall apart and it’s in these situations where grown-up children can become a safety net.
What went wrong?
Statistics published by the firm, Visual Economics, illustrate that almost a quarter of individuals have postponed their retirement age due to financial difficulties. The rosy picture of living out a retirement playing golf and having leisurely drinks in the club lounge has been replaced by worries about pension provision and a shortfall in income and expenditure.
Redundancy and unemployment can be devastating for those in the upper working-age bracket because the opportunities for re-employment can be slim. Many employers do not want to spend money on recruiting an employee who only has a few years of working life left, preferring to give the opportunity to a younger person.
With money left on the mortgage and other debts to pay and with few opportunities to earn a living, adult children are increasingly becoming the bank for Mum and Dad. For some people, this is an acceptable situation. Many adult children feel that their parents have made sacrifices for them in the past and that they can return the favour this way.
Young, university educated professionals with good incomes are often aware that without their parents’ past help and support, they would not be living their dream life. These young professionals know that from savings accounts to university fees and everything in between, raising a child is an expensive business!
It is also likely that the adult child will inherit investments and property from the parents and therefore sees helping them pay their mortgage as an investment, knowing eventually the money (such as investments in property) will pass down to them.
If you are in the position of helping out your parents, ensure there is clarity regarding what the purpose of the money is and that everyone feels comfortable in the situation. Handle the situation with delicacy too, as most parents would not wish for events to unfold in this way. Organizing savings accounts that your parents can access without asking you directly for money can be a subtle way to achieve this.