Years ago, people actually saved up for items that they could not afford. I know, don’t laugh, but it is true. These days of course with today’s ‘want it now’ mantra, the rise of the credit card and overdraft have meant that we do not have to wait to buy what our heart desires, we can have it instantly. I mean, life’s too short right? But as the banks are closing the doors on easy loans and making it harder to obtain a credit card, many of the younger generation are now finding they have to approach their grandparents and cash in on their savings, to help them out. Recent research from MoneySupermarket showed that around 1.7 million grandparents and parents, despite living a thrifty lifestyle themselves, are now being forced into the red as a direct result of loaning money to their offspring. It seems that 24% of grandparents who have grand-children aged over 18 are having to help them financially. And a massive 32% of parents with adult children still provide financial assistance to their offspring. Whereas a couple of decades ago, these cash injections might have been towards the purchase of a house or other major expense, these days the money is being used for general living expenses as children are finding it increasingly difficult to keep up with payments and run into debt. The research showed that the majority of money given, 58% and 41% respectively is to help with the general cost of living, second on the list was funding education with totals of 34% and 23%, and finally ‘helping with debts’ was the case in 25% and 14% of those polled.
The problem is that not all grandparents and parents have a nest egg to which they can dip into although over 46% of parents and grandparents did dip into their life savings. However, around 14% had to raise the money through credit cards, whilst a further 14% had to use their overdraft. And it has had an impact on their lifestyle as well with 33% now saying that they have not been able to save as much as they wanted to. Worryingly, 18% now have a debt that they cannot pay off themselves. It is thought that the average amount borrowed from children is around £3,513. The head of banking at MoneySupermarket, Kevin Mountford, says, “Parents and grandparents have traditionally provided financial support towards their childrens’ life goals, but with the nation’s wallets pushed to the limits, it is clear this support has grown significantly. Many parents and grandparents who provide monetary help are finding their own financial situation being pushed to the limit, with some taking on additional debt or stopping saving to help their nearest and dearest.”
It may not be so much of a problem if it is clear that the money borrowed will be paid off and when, however, pensioners are already facing a hard enough time and this category of people are not typically lent money as they have no salary. Vince Smith-Hughes who works at the Prudential is concerned, “Pensioners are typically the hardest hit of all consumers by inflation,” he said. “This is because, compared with the majority of people, they spend a much higher proportion of their income on the goods and services that have the fastest rising prices, such as food and fuel.” And many pensioners have seen the value of their pensions reduced in the last few years and property values have dropped, which can wipe thousands off the value of their homes. The Key Retirement Solutions’ Pensioner Property Equity Index reckons that homeowners aged 65 and over have lost £6.38billion in the past three months off the value of their homes – equivalent to around £1,595 each and there seems to be no let up as the economy is now in a double dip recession.
So should we all strive to live like our grandparents? It would not be a bad idea. To cut back on credit cards and save up for the larger purchases is a much financially healthier way to obtain the things we need. And it surprisingly does not take long to adapt to this way of thinking and buying. Go out with money in your wallet or purse, and only spend that, so you can see exactly what you are spending and the value of money soon returns. As Guy Simmonds, head of product for protection and investment at Nationwide Building Society, comments, “The baby boomer generation who had to contend with post-war rationing and austerity can teach us all a few lessons in how to save, mend and make do. After all, this is likely to be the last generation to retire with a decent savings pot behind them.”