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Bank of mum and dad part with £17bn a year

Parents are parting with £17 billion a year in gifts or loans to help their adult children fund major life events.

But the generosity of the bank of mum and dad is increasing economic inequality among young adults, according to a report from the Institute of Fiscal Studies (IFS).

Young adults whose parents are wealthy and own their own home tend to be higher earners and also benefit from more frequent financial gifts of a higher value from their parents.

Children whose family income puts them among the highest-earning fifth in the country receive an average of £6,300 over an eight-year period while those in the lowest-earning fifth receive an average of £240.

Buying or improving a home is one of the most common reasons children are given financial help from their parents, receiving on average £20,000 to fund their plans.

Bank of mum and dad increases inequality

Bee Boileau, research economist, said: “Substantial intergenerational transfers happen when people – particularly those with richer parents – are in early adulthood and are buying their first home or getting married.

“While these transfers are important assistance for some, they are very unequally spread. The children of university-educated homeowning parents receive around six times more in wealth transfers during their 20s and early 30s than the children of renters, while white young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults.”

White young adults receive substantial gifts much more often than black or Asian young adults.

One in 10 white young adults receive a gift in a two-year period, compared with one in 25 black African or black Caribbean young adults, and less than one in 30 Pakistani or Bangladeshi young adults. Differences in parents’ wealth between these groups is likely a key driver.

“As well as the benefits these transfers can provide,” added Boileau, “policymakers should keep in mind [the] potential to pass on inequalities from one generation to the next.”

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