5 useful ways the “Bank of Mum and Dad” can help their children (that isn’t a property deposit)

If you want your children to have the best start in life, you’ve probably considered giving them a financial leg-up. This can be a great way to help them get started in the adult world.

One of the most common ways to do this is by helping loved ones to get onto the property ladder. According to research published in the Independent, the so-called “Bank of Mum and Dad” supported nearly half of first-time buyer home purchases in 2021.

Of course, if you want to help your loved ones when they’re ready to fly the nest, there are other things you can do. Read on to find out five useful ways to support your children that don’t involve assisting with the deposit for a property.

1. Help them with their student loans

Encouraging your child to study at a university can be a great way to open doors for their future, but it can also be very costly. According to government figures, the average student graduates with around £45,000 of debt.

Of course, while student loans don’t function in the same way as normal debts, they can still affect your children’s financial wellbeing. For a start, the repayments will ultimately eat into their income, making it harder for them to build up wealth.

Furthermore, when your child comes to buy a home, these debts can be taken into account and can make it harder for them to secure a mortgage.

Paying off these loans can mean your child has one less thing to worry about when they enter the world of work. Not only will they be able to save more effectively, but they can also help when they want to take their first step onto the property ladder.

2. Let them live with you to save money on rent

In recent years, house prices have risen considerably, and this can make it difficult for many young people to save up for the deposit for a mortgage. According to figures from the Office for National Statistics (ONS), in November the average value of a UK home was £271,000.

Not only this, but rent can also cost young people a sizeable portion of their income, reducing the amount that they can save each month for their mortgage deposit.

If you want to help your children build their wealth more easily, one option is to let them live at home for a while, either paying a low amount of rent or none at all. This can help them to save up for a mortgage deposit much more quickly.

3. Boost their savings and investments directly

If you want to help your children financially, doing so directly by making a payment into their savings account or ISA can be a great way to help them. For example, if your child has an ISA, then you could consider helping them to maximise their allowance. In the 2021/22 tax year, this stands at £20,000.

Indeed, you could also consider helping them with a Lifetime ISA (LISA). LISAs are a dedicated account designed for people between ages 18 and 39 to buy a first home or make an early start on retirement saving.

LISAs have a lower annual allowance of £4,000 each tax year, and this amount does count towards their overall £20,000 ISA allowance. There are both Cash LISAs for saving and Stocks and Shares LISAs for investing in the stock market.

Crucially, each time your child contributes to a LISA, they’ll receive a 25% government bonus. That means, by saving or investing through a LISA, your child will receive an extra 25% on top – that’s up to £1,000 more each tax year if you give them the full £4,000 to put into their LISA.

This could be a great way to create a fund for homebuying or for their future.

Alternatively, you could use your greater financial knowledge to invest some of your wealth on their behalf. This can be a good way to build their wealth quickly and meet short-term goals.

If you choose to let your child live at home with you, you could even take the rent that they pay you and invest that for when they finally fly the nest!

Alternatively, if you want to help your children in the long term, you could consider setting up a pension on their behalf. Even if you only contribute a small amount into it, the pot could grow to a considerable amount over time because of compound returns.

4. Help them to reduce their insurance premiums

While many young people appreciate the freedom that having their own car can give them, there are a lot of extra costs that come with it. One of the biggest ones is insurance, which can be very expensive for young people.

If you want to help loved ones to reduce their premiums, you could consider adding them to your own insurance policy. While you can probably easily absorb this extra expense, the move can help your children to save a significant amount of money each month.

5. Help with the cost of childcare

If you’re lucky enough to be a grandparent, another significant way that you could help your children financially is by helping them with the costs of childcare.

For many young people, the cost of nurseries to look after children while they work can be a major drain on their income. According to MoneyHelper, the average cost of full-time childcare for a two-year-old is £263 a week.

This is why offering to cover some of the costs of this valuable service, or even offering to look after your grandchildren yourself, can be a great way to support the finances of your loved ones.

Get in touch

If you want to help your children financially, it’s important that your generosity doesn’t affect your progress towards your financial goals. If you’re concerned about this prospect, we can help. Email enquiries@rosebridgeltd.com or call 01204 300010 to find out more about how we could help you.

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.