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Family fortunes

Increasing pressures on the middle generations to support their children into their 20s while providing for their parents in old age mean we must begin to think in terms of family finance rather than personal finance, says Engage Mutual Assurance chief executive Andrew Haigh

The make-up of the modern British family is changing. The number of single-parent families has doubled since 1998 and one in four children are now brought up by one parent.

With these changes come claims of a breakdown in family life. Fathers in the UK work the longest hours in Europe, seven out of 10 women aged 85 or over live alone and celebrity chefs are mourning the death of the family meal.

Headlines portray a selfish society where “The joint bank account becomes a thing of the past,” “Women keep secret savings” and “People wait longer to start a family.”

But take a look at the financial relationships between family members and a remarkably different picture emerges. Our research shows that the financial ties between generations go far beyond bricks and mortar.

When you consider that almost half of parents with children over 25 are helping them to cover the basic costs of living, there is a clear willingness across generations to provide financial support to family members to help deal with the increasing pressures of modern living.

What is concerning is the lack of planning that families are putting into providing that support.

With the cost of raising a child to 21 being put at £166,000, student debt averaging £15,000 and first-time buyers being priced out of the property market, flying the nest and gaining independence from parents is becoming an increasing struggle for young Britons.

Recent reports suggest that 50p of every £1 that the average graduate earns will be swallowed by tax, student debt repayments and soon to be compulsory contributions to the new national pension savings scheme, leaving the young to turn increasingly to their parents for financial relief.

Today, the average parent pays £18,000 towards the cost of their child’s first home, more than one in five provide money to help pay off their child’s debts and one in six is prepared to switch jobs to ensure they can provide for their child’s university education.

The picture starting to emerge is that the relationship between parents and offspring lasts well into adulthood. Last month, the Future Foundation reported that “far from being self-serving workaholics with no time for their children, modern parents spend four times as much time with their children as the mothers and fathers of 30 years ago”.

The burden of support is not just downward through the generations, either.

By 2020, there will be more pensioners than taxpayers. With reports suggesting that nine out of 10 pensioners are at risk of using up all their retirement savings before they die, many pensioners will rely on the state or their family for care in old age.

Although many people do not feel able to support their parents financially in old age, our research shows that one in five will invite their parents or another elderly family member to live with them.

Pension pots are emptying and the inheritance tax threshold has risen by 85 per cent since 1996.

The middle generation are being stretched by their financial ties to older and younger generations. Parents make cutbacks to support their children into adulthood but they are feeling growing pressure to provide for their parents in old age.

Many families will face problems in meeting their aspirations to provide financial support for each other if they do not start to prepare well in advance. There is a pressing need for financial providers to respond to this pressure and become focused on the need for family finance, not personal finance.

It is more important than ever to encourage families to take those all-important first steps to develop at least a basic savings habit to help provide for the future.

Simple products such as savings accounts, child trust funds and basic longterm savings plans can all play a helpful role in developing a savings habit.

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