If you’re a parent or grandparent, there’s a pretty good chance you’ve found yourself in the role of the “Bank of Mum & Dad”.
Maybe your daughter is itching to buy her first home, but is just a bit short on the deposit. Perhaps your son and his partner are feeling the financial strain of childcare costs. Or perhaps you are eager to support your grandchildren with their school fees or help them with university expenses.
You want to lend a hand, without a doubt. But there is a nagging question in the back of your mind: “How much can we really afford to give… without jeopardising our own retirement?”
The Evolving Bank of Mum & Dad
The concept of the “Bank of Mum & Dad” isn’t exactly groundbreaking. For generations, parents have opened their wallets to help their children, but the landscape has changed dramatically.
Today, house prices are skyrocketing compared to wages, deposits are hefty, and the rising cost of living has squeezed everyone’s budgets.
Meanwhile, many of you may be beginning to think about your own retirement and future care needs, all while trying to maintain a comfortable lifestyle. It’s no surprise that so many families are wrestling with the same question: “We want to help our kids now, but we can’t afford to get this wrong.”
The good news? You can provide support in a way that makes sense for everyone involved, as long as you tackle three straightforward questions.
1: What Can You Safely Afford to Give?
Many will start by considering the wrong question: “How much do the kids really need?” A better starting point is: “How much can we comfortably afford to give without sacrificing our own financial stability?” This means taking stock of:
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What you have (savings, investments, pensions, property).
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What you’ll need (day-to-day expenses, high one-off costs, potential care expenses).
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What could go wrong (market downturns, unexpected longevity, inflation staying higher for longer).
At PWS, we usually create a lifetime cashflow plan. In simple terms, this means mapping out your income and spending year by year, stress-testing it along the way (like, “What happens if markets aren’t great for a few years?”). Then we layer in potential gifts to see how they affect your financial trajectory.
You don’t need a flawless plan, but you do need enough clarity to answer key questions like:
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“If we gift £50,000 now, are we still on track?”
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“What if we try to help both children equally?”
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“Will this gift mean we have to work longer, spend less, or take on more risk?”
Once you have a clearer picture of what “safe” looks like for you, making decisions becomes a lot less stressful. You stop guessing.
2: What’s the Smartest Way to Help?
Once you know how much you can give, the next step is to figure out how to structure that help. Here’s a breakdown of the most common methods parents use, with a no-nonsense look at the pros and cons:
Outright Gift: You simply give the money, and it’s theirs, no strings attached.
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Pros: Super simple, helps keep lenders happy for deposits.
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Cons: Could lead to feelings of unfairness among siblings, and it’s a risk if the child faces divorce. Plus, tax implications can get tricky.
Loan (Informal or Documented): You lend the money instead of gifting it.
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Pros: Can help maintain fairness (like “We’ll help you both eventually”). If your situation changes, you might need the money back.
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Cons: Lenders want clarity: is this really a loan or a disguised gift? And if it’s a loan, when will it be paid back?
Guarantor or Joint Borrowing: You use your stronger financial position to support their mortgage.
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Pros: Useful for kids with solid incomes but small deposits. You preserve more of your capital.
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Cons: You could be liable if they can’t make payments, and it might impact your own borrowing capacity.
Co-Ownership: You buy the property together in some form.
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Pros: Allows you to maintain more control, and it can connect to long-term family planning.
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Cons: Taxes can become complex, and you have to think about what happens if you want to sell, but they don’t.
There’s no one-size-fits-all solution here. The best choice depends on your own finances, their situation, how much control everyone wants, and how flexible you want to be if life changes.
3: How Do We Keep Things Fair?
Let’s face it, money isn’t just about numbers, especially when it comes to family. Here are three emotional hurdles that often come up:
We helped one child more than the other…”
Maybe one child needed a bigger deposit, or another lives closer and gets more childcare support. If fairness is a concern, consider keeping a simple written record of who has received what. Be transparent about any adjustments you’ll make in your will, and have open discussions.
“We helped, so we should have a say…”
It’s easy to feel that if you contribute a substantial amount, you deserve a say in decisions like where they live or how they decorate. It’s a common feeling; just remember to respect their autonomy and wishes, even if you’ve helped financially.
“We said nothing, and now everyone is resentful.”
It’s a sentiment that many of us can relate to, especially when it comes to family dynamics. Silence in these situations can breed lingering resentment. Think about it: if you choose to help one child but whisper to them, “don’t tell your sister,” or if you keep your true feelings bottled up, it can lead to misunderstandings and hurt feelings growing in the background.
You don’t need to organise a big family meeting with slides and agendas to address this. A straightforward and honest conversation can work wonders. Simply saying something like, “We want to support both of you as much as we can. Right now, this is what we can offer, and here’s how we’re considering fairness for everyone over time,” can make a significant difference.
Where good planning comes in
When we talk about the “Bank of Mum & Dad,” it’s easy to think it’s just about finances—how can we assist the kids with money? However, there’s more beneath the surface:
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It’s about safeguarding your independence and dignity during retirement.
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It’s about giving your children a head start without creating future complications.
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It’s about maintaining strong family bonds.
A solid financial plan does more than just confirm that you can afford to give a specific amount. It helps you evaluate important factors, like:
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The implications of gifting now versus later.
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Whether it’s wiser to give from cash reserves, investments, or even pensions.
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How these gifts align with potential care costs, your desired lifestyle, and your legacy.
Most importantly, a good plan shifts you from a place of worry and uncertainty to one of clarity and confidence in your decisions.
A simple next step
If you’re considering helping your children or grandchildren but are unsure about how much you can do without jeopardising your own future, starting with a simple conversation is a great first step. Together, we can:
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Review where you currently stand financially.
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Estimate what your retirement and later life might cost.
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Discuss various ways to support your loved ones and the pros and cons of each option.
In doing so, when you choose to open the doors of the Bank of Mum & Dad, you can do so generously and wisely, ensuring you’re helping your children today without compromising your own future.
