The financial crisis has had a devastating effect on a generation of young people who unlike their parents fear that their future will be more uncertain than it used to be in the past. Finding a decent job, making a deposit to purchase a new house and finding enough money to pay for medical, childcare and other running expenses has never been more challenging for our young people.
Research carried out mainly in the UK explains how young people are coping with these challenges. The concept of the extended family may be fading but grandparents are still a focal point in our society as they are often becoming the financiers of last resort for their grandchildren.
Stephen Womack, an adviser with David Williams Chartered Financial Planners of the UK, said “grandparents like the idea of giving money to grandchildren rather than to their children. Grandparents often want to help their own grown-up children but are concerned about losing control of their hard-earned savings or about gifts being wasted on squandered. For example, if they make a big lump sum gift to their son or daughter who then divorces some of that could be lost”.
So grandparents are increasingly launching their financial lifeboats to rescue their grandchildren from the troubled waters they are struggling in. Of course, not every young person is lucky enough to be able to rely on grandparents’ help.
A report by insurance giant Prudential confirms how in the UK “younger generations have been crippled by the impact of the financial crisis – and their ageing parents are picking up the bill”. Many parents are making “regular handouts, such as paying essential gas bills and the weekly food shop”.
But it seems ageing parents have their own financial concerns and “are risking their own standard of living” due to the amount of money that they are handing out to their children. So grandparents are getting more involved in this intergenerational solidarity. According to the Prudential report, 39 per cent of retired people are contributing an average of €5,000 a year to support their children and grandchildren.
Young people in the UK, and indeed in Malta, must consider themselves lucky as youth unemployment in these countries is not as high as it is in countries like Italy, Spain and Greece. So the priorities of young people in countries that have performed better in the financial crisis are more related to buying their first house, or finding financial support for childcare and daily expenses to get by.
Apparently the plan is to force childminding grandparents to register with the tax authorities to be granted permission to perform such duties without their offspring incurring tax
The Institute for Fiscal Studies confirms that the average family in the UK has an income today after being adjusted for inflation which is lower than it was 13 years ago due to the “crippling cost of living”. Were it not for the support given by parents and grandparents life would be even harder for the younger generations.
To help make their lifeboats more effective, grandparents are often forgoing their lifetime dreams to spend more time travelling abroad or buying luxury items, in order to help their grandchildren pay for their weekly food bill. They also sacrifice more of their free time to take care of their grandchildren while their children go out to work.
This very valid economic contribution is not captured by official statistics. I was shocked to read that the Irish government is considering focusing on grandparents who care for their grandchildren. According to the Irish Independent, “grandparents minding their offspring’s children may be targeted as revenue begins a clampdown on child minders”. Apparently the plan is to force childminding grandparents to register with the tax authorities to be granted permission to perform such duties without their offspring incurring tax. Bureaucracy knows no limits.
In some cases the financial situation of some young people is so desperate that their parents and grandparents are borrowing money off the equity of their homes in what is known as ‘equity release homes’. This could be a dangerous practice if the liquidity created by such loans is used to pay for running expenses incurred by children and grandchildren.
Grandparents also support their young grandchildren by opening a savings account in their name. About 30 per cent of British grandparents are still doing this on a regular basis.
Reviving the culture of savings is one way of transferring financial management skills to young people who often did not have to struggle to buy their first car because their parents were only too pleased to donate it to them.