Parents are handing over thousands of pounds to help their offspring fly the family nest – a process that is neither easy nor cheap in an era of university tuition fees, post-Brexit inflation and the high cost of housing.
According to research conducted for The Mail on Sunday by Nationwide Building Society, 85 per cent of parents have stumped up cash for everything from broadband to bookshelves, with more than half of the money coming from their savings.
Getting youngsters started at university is usually the biggest outlay. But Mum and Dad are also subsidising mobile phones, clothes, books and ‘spending money’.
‘Failure to launch’: It is a new family hazard with many parents dipping into savings to help their children
This initial hand-holding can gradually turn into ‘failure-to-launch’ syndrome, with children relying on their parents financially into their 20s and 30s.
Here are six ways to help children survive financially in the big bad world.
1. GET TO GRIPS WITH PROPERTY
You could provide a cash gift or an interest-free loan to help your children get on the housing ladder.
Ideally, this should be at least a quarter of the value of the property your child is eyeing up, but even a 10 per cent deposit would give them access to more competitive mortgage deals.
Bear in mind that inheritance tax might apply if you die within seven years of making a gift. To avoid this risk, consider a loan with monthly interest below the market rate.
But agree a repayment plan and formalise the arrangement using a ‘promissory note’, drawn up by a property solicitor.
This makes sure the money is registered as a loan and is paid back.
Alternatively, a guarantor mortgage could work.
This involves you promising to meet mortgage repayments if your offspring fails to do so.
The agreement stays in place until the borrower has reduced the mortgage to an agreed level compared with the property’s value.
Better-off parents could even buy a property outright, but would incur capital gains tax if it was later sold as it would technically be their second home.
One way to avoid this is to get a solicitor to put the property into a formal written trust. You lend the trust the deposit and it then takes out the mortgage, which you need to guarantee.
The named beneficiaries of the trust – your children – can then become ‘life tenants’, giving them the right to live in the property rent-free, but the named trustees hold the titles to the property.
If you turn the property into a student let, you will have to pay income tax on rent, though the income could instead be paid directly to your child as beneficiary and, if they have no other earnings, could fall within their annual tax allowance of £11,000.
Kate Faulkner, a property expert at consultancy Designs on Property, says: ‘You have to invest for between 15 and 20 years to guarantee a return on buy-to-let. See it as a long-term investment first and a support to the child second.’
You could rent to students after your child graduates if the property is close to the university.
When they are finally ready to buy, help your children renovate a tired property and try ‘upcycling’ your old furniture for their benefit.
The whole family can learn about DIY and crafting through YouTube or courses at local colleges, which are sometimes free.
‘WE’RE OFFERING EMOTIONAL AND FINANCIAL SUPPORT’
Vanessa and Eric Smallridge know all too well the cost of emptying their nest.
When their 21-year-old son, Jake, went to Southampton University three years ago to study history, they raided their holiday home for cutlery and other items.
Vanessa, 48, says: ‘When the water and electricity seemingly come into the family home by magic, kids do not worry about how to pay for it. They do not really know how much things cost until they have left home. Then it is a big surprise.’
Costs: Vanessa and Eric Smallridge pay the mobile bills
The cost of Jake’s first-year student accommodation, at £3,500, was more than expected, but he received a full grant for the rest of his course after Eric was made redundant from his job at a building society.
Eric, 55, says: ‘He has now got a Help to Buy Isa and we have offered to chip in with a deposit when he wants to buy.’
Paying their way: Sons Max, left, and Jake Smallridge
The couple from Braunton, Devon, are now teaching their 16-year-old, Max, how to become independent while he completes an apprenticeship through a local estate agent and lives at home.
Vanessa, a part-time administrator, says: ‘We have always encouraged our children to work, earn money and pay their way. But I will pay their mobile phone bills if it means they will text to say they are OK. It is about emotional as well as financial support.’
2. DRILL THEM IN RENTING RIGHTS
If your son or daughter has to rent, they will need to pay a deposit, but should get it back at the end of their tenancy – so long as the place is as clean as when they moved in and there is no damage, no missing items or unpaid rent.
The landlord must use an official tenancy deposit scheme unless they also live in the property, otherwise your child could reclaim the full deposit plus three times its value. Check the Government’s How to Rent guide and websites such as propertychecklists.
3. GET HELP IF YOU NEED IT
Nearly two-fifths of parents rely on unsecured debt to give their children a leg-up.
Universities and organisations frequently offer student scholarships to help with living expenses.
Your child may qualify if you earn less than £25,000 a year, work in a certain profession or if your child is studying a particular subject. Visit scholarshiphub.org.uk.
4. DRUM IN THE SAVINGS HABIT
A qaurter of parents bail out their adult children every month. But parents should encourage them to save.
Training children in the virtues of saving before they leave home is best, maybe by getting them to open a children’s saving account.
If they are 16 or over, get them to take out a Help to Buy Isa, which provides a 25 per cent Government bonus up to a maximum of £3,000 when they buy their first home.
Anyone who is 18 can take out the more generous Lifetime Isa when it launches in April.
These accounts will pay a 25 per cent bonus on contributions of up to £4,000 a year, meaning a free maximum injection of £1,000 a year from the Government.
5. SCHOOL THEM IN SAVVINESS
Spiralling fuel, education and housing costs mean inflation hits the young harder than any other age group.
Alistair McQueen, savings and retirement manager at insurer Aviva, says: ‘The need for the young to carefully manage their finances is greater than ever.’
So discuss unrealistic aspirations and be careful not to hand down expensive shopping tastes.
Paying your children for doing household tasks also teaches them the value of working.
Carlo Gualandri, founder of family finance app Soldo, says: ‘When you have saved and worked for something, you enjoy it ten times more. By the same token, you may discover while saving for it that perhaps you don’t want it so much after all.’
Include your children in family budgeting, whether it is through discussion over the kitchen table or through apps such as goHenry, Qwiddle and Soldo. These give your children financial autonomy while you supervise remotely.
Help them to become ‘micro-expense’ aware – for example, about how the cost of regular takeaway coffees can rapidly add up.
But also encourage them to shop around for cheaper deals on utilities and to spend time reviewing their spending.
If you do pay for anything, whether it is electricity or egg cups, show them how you sought out a good deal.
6. OFFER ALL-ROUND SENSIBLE ADVICE
Analysis by Nationwide reveals we spend on average £1,350 a year on takeaways.
So encourage your children to plan meals, do a weekly shop and learn basic recipes when they fly the nest – and they could save hundreds of pounds a year.
Help them to understand that when they take out insurance, it is no substitute for locking windows and doors and taking good care of possessions, as poor personal security often invalidates a policy.