One-in-five (20%) of high net worth individuals (HNWIs) have sacrificed their own financial stability to offer their adult children financial support, a Saltus report has revealed.
The Saltus Wealth Index Report surveyed more than 2,000 people in the UK who had investable assets of £250,000 ($315,000, €289,000) or more, and found that 79% are financially supporting their adult children in some way.
Nearly one-in-four are supporting mortgage payments, while a further 20% are helping with rent.
While it is understandable that these individuals want to help their children, many are sacrificing their own financial future in order to do this.
According to the report, 39% of respondents said that rising mortgage rates are already putting a strain on their own cash flow but are still willing to provide support.
This has resulted in 22% having to reduce their own pension contributions, while 20% have had to sell another asset.
Chris Allen, director at Arbuthnot Latham, said: “Should individuals over-commit from a monetary perspective to support their families in some scenarios this could cause them to not have the asset base to support their desired level of expenditure in retirement and they could be forced to downsize property which not be a course of action they want to explore in their retirement.”
Clare Francis, director of savings and investments at Barclays Wealth, also warned that careful consideration needs to be taken by parents when helping their children so that they don’t risk their own financial security if they are over generous.
“The last thing you want to do is find yourself struggling to make ends meet in the future because you’ve given too much away,” she added.
Planning
Everyone wants the best for their children and their family regardless of what age they are, therefore planning ahead and having a good understanding of your financial situation can help mitigate financial strain later down the line.
James Wallace, chartered financial planner at Fairstone, said: “Putting your own oxygen mask on first before helping others applies equally in planning for your own financial future as it does at 36,000. That’s why it’s critical to understand what having ‘enough’ means to you.”
He added that a starting point is for individuals to get an in depth understanding of their financial situation, which will then allow them to know what they need and how they can safely provide financial assistance without impacting their financial future.
Barclays Wealth’s Francis also pointed out that many people don’t prioritise retirement planning until it’s too late.
“The risk is they then discover they haven’t accumulated enough money meaning they’ll either have to work longer or make lifestyle adjustments,” she said.
The knock-on effect of saving earlier can result in early retirement, a higher expenditure in retirement and having more financial freedom to support family members retirement.
Arbuthnot Latham’s Allen suggested: “Cash flow forecasting is the best tool to allow parents the comfort of knowing to what level they can help children while maintaining their standard of living.”
This can include “running different retirement scenarios to assess what is a realistic level to support children while enjoying the lifestyle in retirement parents want”, he added.
