The Bank of Mom and Dad (BoMaD) isn’t new as kids have been borrowing or receiving gifts from parents for years. But a new study by Legal & General, a U.K.-based financial services firm and global investor with $1.27 trillion in assets, has found a new twist, one that “hurts” parental retirement savings.
The L&G study found that one in five U.S. homeowners received gifts or loans from family to help them buy their home “supporting the purchase of $317 billion worth of property across America in 2018.” The study states that if BoMaD were a real lender, it would be the seventh largest in the United States. In fact, the total amount loaned out by BoMaD is estimated to be $47.3 billion, just less than fifth-ranked U.S. Bancorp.
The average sum given as a gift or interest-free loan is $39,000 per loan. Parents are “giving until it hurts — putting off retirement or accepting a lower standard of living in their golden years to help the next generation,” the study finds. This amount doesn’t include other loans or gifts, usually dealing with college. Those loans averaged roughly $41,500.
- 54% of U.S. parents and grandparents drained cash savings to help younger family members to purchase property;
- 7% of BoMaDs postponed retirement, 15% reported a lower standard of living, 14% felt less financially secure;
- 48% made gifts or loans without getting professional advice.
The online survey of 2,177 U.S. respondents was done by YouGov and Censuswide from Sept. 26 through Oct. 4, 2018. For borrowers, the total sample size was 1,159 adults.
Reversal of Fortunes
The study also states that “the generosity of these families has probably not reached its limits. … Few so far have used reverse mortgages to release the equity in their own homes, just 2% of the over 55s [years of age]. That’s a market that is likely to see growth in the future and could fund more purchases in years ahead.”
Bear in mind the baby boomer generation is “the wealthiest in history. By 2020, they are expected to account for just over half of all net household wealth in the U.S,” according to a Deloitte paper cited in the study, and will be passing on $30 trillion to their heirs.