Latest figures released by Prudential have revealed that the bank of Grandma and Grandad is becoming increasingly relied upon by families. Grandparents are owed on average £12,700 and 44% never expect to see the money returned, yet 68% have already lent the money regardless with 32% saying they would do so in the future. Furthermore 11% of grandparents have lent their families more than £20,000, posing the question, is this the best unsecured loan ever? Or are the repercussions of borrowing from family, especially those that are probably elderly and more vulnerable too much?
Retirement income specialist Stan Russell said; “As a parent myself I completely understand that most of us who are in a position to do so would want to provide financial help to our children and grandchildren. But as our research shows, in many cases this financial support ends up being gifts from Mum and Dad rather than the loans from the Bank of Mum and Dad they start out as.
“These written-off loans risk making a long-term dent in the finances of parents, often at the stage in their lives when they would like their money to be invested for the future and working hard for them in a pension. If the choice is between providing loans to their children or continuing to contribute to a pension, many parents could benefit from a consultation with a professional financial adviser before making that decision.”
Indeed, of those that have yet to lend any money, 37% believe they will never be paid back, whilst 28% believe they will be repaid eventually.
So it’s a big decision for families, and it appears that more young people are becoming increasingly reliant on such a loan to be able to fund their first home, a whopping 39% of parents lent money towards this. But as well as this, 16% lent money to pay off student debts or credit cards, 21% lent to help with ‘general’ living expenses and 28% helped buy a car. What’s interesting to note, is that many of these youngsters are discouraged from applying for more conventional borrowing, such as unsecured loans or credit card, which probably doesn’t help them on their paths to financial independence. Grandparents approached either by their children or their grandchildren are often in a stronger financial position than their children so are more likely to be in a position to help. Perhaps these youngsters should be encouraged to save, plan and budget for things better, or to use the numerous financial products available to them. Paying a loan back is a fundamental part of borrowing, and Grandparents should not have to accept that repayment is not going to be made.