The number of insolvencies among younger adults is soaring, according to new figures, and falling among baby boomers. Meanwhile, older people are releasing equity from their properties – to manage debt, to pass down, or both?
It seems that the ‘bank of mum and dad’, along with the bank of ‘grandma and grandad’, are becoming more and more influential on the financial direction of millennials and young adults.
Firstly, the idea that a ‘wealth gap’ exists between baby boomers and younger adults has again been reinforced following the release of the latest insolvency statistics.
As a result of rising property prices, millennials are spending a greater proportion of their income on either rent or mortgage payments.
If they have an issue with their earnings then they can become insolvent very quickly. The percentage increase of under 25s and 25-34 year-olds becoming insolvent has climbed 20% for both when comparing 2016 figures to 2017. However, for 55+-year-olds the number of insolvencies have fallen by high single digits.
“In addition to high rents and mortgage repayment costs, millennials can often find it difficult to save significant amounts,” says Jeremy Willmont, head of restructuring & insolvency at Moore Stephens.
“Millennials are at risk of falling into debt through using credit cards and loans to cover living costs such as buying and maintaining a car, which can easily be set up without taking financial advice.”
However, the latest Intergenerational Transfers figures from the Office for National Statistics (ONS) sees the least wealthy and youngest individuals likely to receive smaller inheritances, but make up a much larger proportion of their net total wealth.
Those in the lowest wealth quintile made up 44% of their net total wealth.
If aged under 45, you are more likely to receive cash gifts or loans from friends and family of £500 or more, and on average receive the highest amounts.
“These are the people trying desperately to get on the housing ladder, but struggling to save for a deposit with stagnating wages, high rental costs and the rising cost of living,” said Steve Wilkie, MD of Responsible Life.
Wilkie points to the increase in equity release as key to helping out family members.
“Homeowners released £11m from their homes every day in the last quarter, and a large chunk of this will have been early inheritance, to help younger family members buy a property, but also to contribute towards other costs such as school fees and general living expenses.”