The bank of mum and dad is a growing phenomenon where more and more adult children are relying on their parents to help them out financially on a regular basis. You may be more than happy to help out your children, especially to get them a foothold on the property ladder. However some parents are starting to think their offspring are simply taking advantage of their generosity.
If you believe it’s time to close down the bank of mum and dad, then that is completely within your rights, and there are definite benefits to doing so:
1. Children shouldn’t expect their parents to bail them out of every financial mishap – they need to learn to manage their money responsibly.
2. You could be putting your own retirement at risk if you are continually digging into your savings to help out your kids.
3. If you don’t have enough money for your retirement, you may have to rely on your children – and if they’re not money savvy, they’re unlikely to be in a position to help!
Here are our 10 steps to close down the bank of mum and dad.
Tip #1 – Communicate
It is essential that you sit down with your child and explain that you can no longer continue to give out financial handouts all the time. Reassure them that you are there to support them, but that they have to start standing on their own two financial feet.
Encourage them to be open and to discuss their financial worries – there should be no financial secrets. If they have racked up debts, now is the time to bare all.
Tip #2 – Do It Gradually
It won’t be at all helpful if one day you’re there with your cheque book at the ready, and the next you ignore your child’s requests for help. Agree a timeline for closing down the bank so that your child has a deadline to work to.
Tip #3 – Review Their Expenditure
If your child can’t see how they will cope without your money, then you need to go through their regular expenditure with a fine tooth comb. You need to understand where they are spending their money:
- the essentials (taxes, bills, food, medical expenses etc)
- the nice-to-have’s (gym membership, mobile phone etc)
- the treats (nights out, expensive new outfits, holidays abroad, new gadgets)
If they consider all of the above as essentials, then you may have to re-educate them on their thinking!
Tip #4 – Review Loans And Debts
If you child has a number of loans, check when they will finish. Do they have credit card debts? Get a clear picture of where they are getting stung for high interest rates and if necessary, consider giving them an interest-free, repayable loan (the last one!) to wipe the slates clean. (Remember to create a loan agreement that you both sign up to if you go down this route).
Tip #5 – Bank Accounts And Direct Debits
Check their current account is giving them the best interest rate without monthly fees. Although current interest rates are paltry, the banks are still vying for new customers. If beneficial and your child meets the criteria (normally a minimum monthly amount needs to be paid in), swap to a new bank to get a better interest rate and a bonus for swapping.
Also check the direct debits they have set up to make sure they’re not paying for things they no longer use.
Tip #6 – Advice On Money Savings
With your fresh eyes, you should be able to advise your offspring on where they can save money. For example:
- Fewer takeaway meals; more meals cooked at home
- Fewer trips to the cinema; more watching films at home on a cheap subscription package
- Less shopping for lots of new clothes; more purchase of just a few, quality items which will last for years
- Fewer days out at expensive theme parks with the kids; more days out walking in the countryside for free
Tip #7 – Loyalty Cards
Make sure your child has loyalty cards for the essential stores they use the most – a great way to get cashback or make savings on food and toiletries bills.
Tip #8 – Help With Their Job
If your child is struggling to find a job, help them with job searches and perfecting their CV.; If they are on a low salary but genuinely should be considered for a promotion, help them work on their pitch.
Tip #9 – Ideas To Generate More Income
If their job doesn’t bring in enough money, are there additional ways to generate income? Have they unused items to sell via ebay, Amazon or Gumtree? Can they make some money through car boot sales? Have they a room to rent out to a lodger?
Think laterally about the options and see if there is one to suit your child – then support them as they try to boost their income.
Tip #10 – Encourage Them To Save
At the beginning when you close down the bank of mum and dad, setting up regular savings will be far from your child’s mind. But by getting them to put away some money each month, even if it’s only £20 at the beginning, they’ll start to realise the importance of building up their savings.
It’s not easy to close down the bank of mum and dad, particularly if you’ve been helping out your kids for many years. But in the long term it’s the best solution for your retirement and their future financial security. So why delay?
