The majority of parents want to be able to help their children financially, whether it is buying their first car or helping them with a deposit on their first home. However, according to research conducted by Wealthify; adult children who are given a significant amount of money from the Bank of Mum and Dad tend to have worse financial habits, and become financially independent up to a year and a half later than those who don’t receive financial support.
The study found that a fifth of adults received a lump sum payment from their parents when they turned eighteen, and on average were gifted £15,314. Despite being given money, these adults then relied on their parents financially until the age of 22 years and three months, which compared with 20 years and nine months for those who didn’t receive any help.
As with many financial hurdles, the age that people reach financial independence varies across the country, with Northern Ireland having the lowest age of financial independence, at 19 years and ten months. In joint second place, it was Yorkshire & Humberside and the West Midlands at 20 years and five months, and adults in the North West become financially independent at 20 years and six months on average. At the other end of the scale, the South East has the highest age of financial independence with adults being 21 years and eight months.
To back this up, the overall age at which young adults reach financial independence is also rising with young people now not getting their first job until age 19 on average, which compared with ages 16 to 18 over the last 20 years. As of 2023, more young adults on average are now entering higher education (35.8%), which compared with just 24.7% in 2006, which obviously drives up the age that adults become financially independent from their parents and start full-time employment.
It is a very different financial world in 2024 with milestones like having your first child, buying your first home and getting married being delayed due to young people needing longer to build up their finances. This is further backed up by the fact that only 39% of 25 to 34 year-olds now own their own homes, compared with 59% in 2000; which is why becoming financially independent can feel impossible for those on low starting salaries and enduring high living costs in the current cost-of-living climate.
Whilst it is commendable if parents are able to assist their adult children to take their first step onto the property ladder, or even help with bills etc, it is very important that they try to instil sound financial habits in them from a young age and emphasise that they need to have their own security net to fall back on should they face unexpected costs. These could range from their car breaking down, redundancy at work or having an extended time off work sick, which is where an emergency savings pot becomes a necessary security blanket.
Having money set aside is key to financial independence; and the general rule of thumb is to have 3 – 6 months’ worth of outgoings in a savings account that is not available for random spending, but is still easy to access.
We all know that money doesn’t grow on trees, but in the current Instagram culture where younger (and some older adults) have FOMO of celebrities and influencers’ lavish lifestyles plugging the latest outfit or holiday; it’s vital our young adults learn the value of money to avoid them getting in debt. Recent research from NerdWallet UK found that the age group most likely to get into debt are 25-34-year olds, with 44% using credit cards, overdrafts and personal loans to fund their lifestyle.
Financial education from an early age is essential and whilst it can be tempting to hide money issues from children, by being open about your finances you can help them learn from your achievements (and mistakes). Discuss with them regularly about how you work to earn your money and what it pays for e.g. your mortgage/rent, food, bills, clothes etc. They will soon realise that you can’t always afford to do everything you want immediately and as they grow, you could even show them your bank balance or payslip and explain the benefit of budgeting and investing, demonstrating what money goes in and out each month and what’s left for the ‘fun’ things after paying the essentials. All of this will help build a more solid financial foundation and hopefully help to avoid them taking on unnecessary debt to have a good credit rating for later life.
If you need any advice on financial planning for you or a family member, please get in touch with Birchwood Investment Management to speak to a member of our specialist team.
