‘Savings Sap’ fund stretched

The annual report by Scottish Widows Savings and Investments reveals that the average ‘Savings Sap’ (loaning a substantial amount of money to children and/or grandchildren) now stands at £13,660, compared to £11,800 last year, although the overall sap fund decreased to just over £64.3 billion (from £72.5 billion last year).

The report also indicates that almost half (47%) of parents with adult children (children over 16) have given or loaned money to their adult children or grandchildren, 9% down on 2009. Of those loans, 35% were for day to day spending and living expenses (compared to 25% last year), whilst 38% were to pay off debt and 34% needed the cash to purchase a home.

The immediate effect the saving sap fund has had on parents is also alarming. 82% of parents who gave money to family members had to dip into their savings to do so, and worryingly 54% of these do not think they will be able to top up their savings. Handing money out to their kids has also led over a fifth (22%) of parents to cut back on day to day spending, one in ten have increased their own levels of debt including mortgaging or remortgaging their property, nearly a third are saving less (31%), and 12% have stopped saving altogether. If parents didn’t have to hand out their hard earned cash, 32% would have been likely to save it toward their retirement.

Iain McGowan, Savings Expert, Scottish Widows, said:

“Our “savings sap” research highlights the “double whammy” of the recession where children are relying on their parents. On the one hand, “generation Y” is looking ever more to its parents for help as it struggles to get jobs, credit and mortgages – and to clear debt. At the same time, the “Bank of Mum and Dad” is not as readily available as it once was, often for the same reasons. This means that fewer parents can afford to give or loan money, while those who can, are being asked to provide more. The overall effect though is a fall in the “savings sap fund” in these challenging economic conditions.”

The research also reveals that over half (52%) of all parents with children aged 16 plus that have already given money to their children are expecting to give again in the future. This group of parents think that they will have to donate on average another £14,159, over £1,500 more than was predicted last year (£12,564), which on top of the £13,660 they have already given means that they are only half way through their giving cycle. However, not all parents are in a position to give their children or grandchildren a helping hand. Nearly a third (31%) of those who have not given any money to their children or grandchildren could not afford to, and 18 % had no savings to give.

Iain McGowan added:

“With many parents only half way through their giving cycle, this is a worrying situation to be in. Parents will not only be extremely vulnerable to any unforeseeable circumstances such as salary cuts, but the extra handouts to their kids can also affect them in retirement, meaning they may have to work longer, or make their retirement savings stretch further. The earlier parents and children get into the habit of saving the better. Saving regularly into a tax efficient savings vehicle such as an ISA can help to build up a “Sap Fund” and make a big difference.”