5 crucial considerations to make before you commit to opening the Bank of Family

As a parent or grandparent, you want to give your child or grandchild the best chance of success in life. Helping them financially is one way you can support your children as they transition into adulthood and start their careers.

You may be considering opening the so-called “Bank of Family” to help your adult children or grandchildren meet key milestones, such as going to university, starting a business, getting married, or buying their first home. Indeed, the Independent reports that 54% of home-owning parents have or expect to help their children buy a home.

Offering financial support can be a powerful way to assist them as they start to earn their own money and take their first steps into adulthood.

However, there are several considerations you should make before you do so – read on to discover five.

1. Set clear boundaries

Boundaries are powerful in establishing and maintaining healthy relationships. They enable you and your family to set clear expectations.

For example, when giving money to a child it may be useful to clearly state whether it is a gift or a loan.

This could help prevent any miscommunication or confusion down the line, helping you to maintain a healthy and supportive relationship.

If you loan money to your child, you should also lay down clear expectations around:

The repayment schedule
The repercussions if your child fails to meet their payments
If you will charge interest on the loan.

This may feel a bit formal for a family matter, but it could help to protect your relationship if misunderstandings arise.

You could also consider seeking legal advice to put a formal agreement in place.

2. Make your intentions for financial gifts clear

As well as making it clear whether you expect your financial support to be repaid, it could also be useful to lay down your expectations around how any money should be used.

For example, you may want your child to use a gift to pay for living costs at university or as a deposit for a property.

It’s common for parents to help their children buy their first home, as the Independent reports the average deposit for a first-time buyer has reached a significant £53,414.

It could be very difficult for a young adult to save this amount of money on their own, so it’s no surprise that the Guardian reports that 37% of first-time buyers received a gift to help with their deposit.

Whatever your intentions, before you give any money, consider having a conversation with your child where you explain how you wish them to use your gift or loan.

3. Don’t put your own financial plans at risk

Your parental instinct may always be to help your child or grandchild in any way possible. However, before you offer financial support it could be worthwhile to consider how a gift or loan could affect your own financial situation.

Ask yourself:

Would providing financial support affect your own long-term plans?
Would giving money to your child leave you vulnerable to unexpected shocks?

A financial planner can help you understand the implications of a loan or gift, so you can make a decision with confidence.

For example, we can use cashflow modelling to forecast your future financial position, and predict how giving a loan or a gift now could affect your lifestyle in years to come.

4. Gifts should be protected

If your child is buying a home with a partner, it’s important to consider what would happen to your gift or loan if their relationship broke down.

It’s a difficult conversation topic, but in the unfortunate event that something should happen, it could be vital. Losing half of any gift you give to your child in the event of them later separating from their partner may be a tough pill to swallow.

Prenuptial agreements are an increasingly common option among marrying couples in the UK. Indeed, Sky News reports that around 1 in 5 weddings in the UK now involve some form of legal agreement.

You could also work with a solicitor to draw up a declaration of trust, which states the money was gifted to your child and not their partner.

Additionally, a living together agreement or tenancy agreement may be appropriate if someone else will be living at the property.

5. Ask yourself: “Is this really in my child’s best interest?”

Giving your children financial support can be a great blessing to them, but sometimes it can have negative consequences.

If your child comes to rely on you for financial support, they may struggle to develop their independence.

With a constant safety net, they may not have the motivation to:

Find stable employment
Manage their own finances
Take responsibility for their bills.

You know your child better than anyone. Before you decide to give them a gift or loan, it could be wise to do some soul-searching.

Ask yourself “Is this really in my child’s best interest?” Sometimes, it may be better for them if you just say “No.”

Get in touch

If you’d like advice on how you could financially help your children or grandchildren as they progress through life, get in touch.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.