Moral Money: our reader is concerned the ‘Bank of Mum and Dad’ is overstretched
Dear Moral Money,
My daughter has just got engaged, and is planning to get married in 2025. She and her husband will be aged 32 and 35 respectively by then, and they both have very good jobs.
I have already gifted and loaned a substantial amount of money (around £300,000) to her to pay for her flat, which they both live in. She is paying back the loan element at a small amount every month.
She wants to organise the wedding herself, but expects me to pay for it. I will be retiring in 2026, and I am desperately trying to save for that, so I’m very worried about giving her any more money.
Parents often want to pass on wealth during their lifetime, as it can be far more rewarding to see our families benefit from our money while we’re still around, than gaining another nought on our net worth.
According to the findings of a Gallup survey, reported in the book Wellbeing by Tom Rath and Jim Harter, the trick to financial wellbeing is twofold:
- Buy experiences such as holidays and days out – make memories with friends and loved ones
- Spend on others instead of on material possessions.
Based on this, it sounds to me as though you should be feeling really good, given that you have been so generous with your family and now have another opportunity to contribute to great memory making.
However, the demands on you are causing quite the opposite effect.
Over decades of working with clients as a financial planner I have met parents who are so generous they risk poverty in their own lives, and those who just accumulate wealth for no quantifiable reason.
The obvious solution is making sure we have enough money to maintain our own financial independence throughout our lifetime, and then enjoying the opportunity to help our loved ones with whatever is “spare”.
As a mother (of sons rather than a daughter, which means there was no expectation that I would fund their weddings), I consider one of the greatest gifts I can give my children is that I will be able to cover my own long-term care fees, if needed.
I don’t want to be a frail resident in their homes when they are trying to raise a family and working full-time in order to finance their western lifestyle. While other cultures do it very differently, I am sold on this path personally and have planned accordingly.
Intergenerational gift and loan arrangements don’t usually happen by accident. There is usually a deed to outline the expectations around interest and repayment terms, and what happens if things don’t go as expected.
It may be that you have a much more casual arrangement in place, but I can’t imagine you have given away money without having a think about what you need for your own financial security, including some obvious “what if” scenarios in case of a change in economic or personal situations.
I am guessing there needed to be a loan element because you wanted to be as generous as possible to help your daughter and realised that, although you could let her use some of your capital for her benefit temporarily, you could not afford to part with that capital unconditionally.
In addition, it can be tax-efficient to reduce the value of estates because if we make the mistake of dying with too much left over then we end up losing 40pc of it to tax.
While tax is the price we all pay for living in a civilised society we have to ask ourselves if we wouldn’t rather distribute our “spare’’ wealth amongst our nearest and dearest and see them flourish, rather than have a big slice disappear off to HMRC.
I am wondering if, during the process of deciding how much you could give and loan to your daughter, there were any discussions about how the money should be used? Was it clear that you would not be giving or lending more?
It seems she has gained a sense of entitlement, which may have been signalled by your previous generosity.
Maybe you will be doing your daughter the biggest favour by encouraging her to have the wedding “she” can afford and helping her learn to live within her means.
You will also be building your own financial resilience and independence to protect her from having to worry about you in your later life. Take care of yourself and be a great example to your daughter.