Billions of pounds loaned by the “bank of mum and dad” to help with property purchases and to boost the finances of newly married offspring are helping to fuel rising levels of inequality, according to a thinktank.
The Institute for Fiscal Studies said parents would provide £17bn in gifts and informal loans this year. Most transfers come from the over-50s to children in their late 20s and early 30s.
The IFS said the gifts stoke inequality among younger generations, with the offspring of university-educated, home-owning parents receiving as much as six times more in their 20s and 30s than the children of renters.
“Substantial intergenerational transfers happen when people, particularly those with richer parents, are in early adulthood and are buying their first home or getting married,” said Bee Boileau, a research economist and author of the IFS report. “While these transfers are important assistance for some, they are very unequally spread.”
The report found children in the highest-income fifth of society received 26 times more than their peers in the lowest fifth during early adulthood. It said help amounted to £6,300 on average for the wealthiest, compared with £240 for the poorest.
It found that white young adults were three times more likely to receive a substantial gift than their peers from Pakistani or Bangladeshi backgrounds. The report also identified a gender trend, with women more likely to receive gifts from parents at a younger age, whereas men were more likely to give gifts at older ages.
The analysis of intergenerational wealth transfers shows that about half of the money young adults receive is for property purchases or home improvement, with an average of £20,000 in support coming from parents.
The children of families that fall into the least wealthy third of the UK population are relatively more likely to use financial gifts to buy a car, pay off debts or pay for education.
The report found loans and gifts were less forthcoming when children faced other “adverse” events in life, such as losing a job.
“As well as the benefits these transfers can provide, policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next,” Boileau said.
