The cost of adult children: are you giving your children and grandchildren too much money?

Facts and figures are often trotted out that say the baby boomer generation is currently the wealthiest of all. And that may well be so. Anecdotal evidence also suggests that this same generation is the most generous too.

This generosity has recently been the topic of a study conducted by Investec Wealth & Investment. The study found that over-55s, in particular, are exceedingly generous with their children and grandchildren.

“It’s understandable that many grandparents want to give their grown-up children and grandchildren a helping hand financially, particularly with big ticket items such as house deposits and education fees,” says Chris Aitken, head of financial planning at Investec.

Generosity at a price

However, this generosity could be costing the givers a lot, both in money and in peace of mind. The study found that a third of over-55s are giving away more than £5,000 a year, and 18 per cent of this group planned to give away even more once their pensions were freed up.

However, one in five of the participants in the survey also thinks that they are being “overgenerous” and giving away too much money, and giving away too much money, and another 11 per cent of the group have already had to cut back on their own lifestyle to provide the financial gifts that they are giving away.

These cutbacks range from fewer meals out (42 per cent) to delaying or choosing to not do home improvements (39 per cent) to purchasing fewer clothes (25 per cent) and spending less on their own hobbies (21 per cent). However, 11 per cent of participants also said that they were spending less on food to give money to their offspring and grandchildren.

It’s natural to want to provide the very best for our children and grandchildren and we are all well-aware of the current climate younger people are in. Property prices and the cost of a tertiary education, among other things, have many people worrying over the debt their children and grandchildren could find themselves in.

Investment firm Orbis Access has also looked at the financial help parents are providing to their children by polling 1,100 British parents with children under the age of 18.

They found that parents are not only expected to pay towards university fees and a deposit for a house, they are also, to varying degrees, expected to pay for their child’s wedding, or at least a part of it, living expenses when they finish their degree, costs of post-graduate qualifications, if they pursue them, and to fund travelling expenses.

The pros and cons of overgenerosity

Giving financial gifts to our progeny not only feels like the right thing to do to help them get on with life, it also happens (almost) automatically. The duty of care parents have to their children doesn’t stop when the child reaches the age of 18.

The investment companies are alerting parents and grandparents to the fact, however, that they must consider their own needs and make provisions for what could be a long retirement. Preserving enough capital to live comfortably is as important as helping the younger people in your family get on the property ladder.

On the other hand, dispensing with cash gifts now, if done early enough, can remove the sting of inheritance tax down the line. In most cases, parents are thinking more of how they can help their children with their immediate needs of getting on to the property ladder, as one example, rather than cocking a snook to the taxman, but it’s not an unattractive benefit either.

Marcus, 55, helped his children, now adults, by funding their first qualifications after school and buying their first car. “There is an adjustment for youngsters to make from school to adult life,” he says. “I operated on the premise that a post-school qualification and a car provided the tools they needed to make the transition into adult life.

“I’ve been proven right so far. There were a few false starts along the way but all three are now firmly on their paths and enjoying their lives.”

Renee, 58, thinks that having enough money for a comfortable retirement means very little if you spend your time worrying about whether your adult children are comfortable.

“I don’t expect to pay for their every need now that my children are 30 and 28, but I will definitely step in and help them if they need me to,” she says. “My thinking is, who needs a cruise when there are weddings and degrees to pay for – and enjoy?”