Supporting your family without compromising your financial security

It is perfectly understandable to want to support your children financially. Helping them through important stages of life is one of the most rewarding ways you can use your wealth.

Whether it is contributing towards university costs, helping with a first home, or providing financial support while an adult child establishes their career, family support can make a significant difference – particularly when you are in a position to help.

This type of support has become increasingly common. According to data from the English Housing Survey and market analysis by Savills published in UK Parliament reports, 40% of first-time buyers rely on family gifts or inheritances, with total parental lending reaching £9.6 billion in a single year.

And it is not necessarily just children who may need financial assistance. At the other end of the age spectrum, you may also find yourself helping elderly parents or other relatives with the costs of care, home alterations, or other unexpected expenses.

There is nothing wrong with wanting to help the people you care about. The key is to make sure the support you provide is sustainable and doesn’t leave you with too few financial options later in life.

The sandwich generation is supporting children and parents

A term increasingly used to describe people who have both children and elderly relatives who are financially dependent on them to some extent is the “sandwich generation”.

For these families, financial responsibilities can extend in both directions, making it harder to balance immediate family needs with longer-term financial goals.

The Saltus Wealth Index, based on high-net-worth families, highlights the scale of the support being provided:

• 73% of affluent parents are financially supporting adult children.
• 68% are helping ageing parents or grandparents.
• 12% are supporting both generations simultaneously.

The same research found that 31% had sold investments to provide financial assistance to family members, while 12% had reduced or stopped pension contributions for the same reason.

These decisions may be entirely deliberate. For some people, helping their family is a higher priority than maximising their own wealth.

However, it is worth understanding the longer-term implications before making significant changes to your financial plans.

The hidden cost of putting your wealth accumulation on hold

One of the easiest ways to free up more money for family support is to temporarily reduce or pause pension or investment contributions, with the intention of making up the difference later.

Sometimes that may be the right decision. But it is important to consider both the opportunity cost and the immediate benefit.

Money that is no longer being invested loses out on years of potential growth. You are not only missing out on the returns that those contributions could have generated, but also on the potential compounding of those returns over time.

You can increase your contributions again in the future, but you cannot recapture the years of investment growth you have already missed.

That does not mean you should never reduce your pension contributions or use investments to help your family. Instead, consider what you are trying to achieve for your family and what that same money might mean for your own financial future.

Understanding that trade-off can help you make decisions that reflect both your family priorities and your longer-term plans.

4 ideas to help you balance family support with your own financial plans

If you are thinking about helping family members financially, there are several things worth considering.

1. Set clear boundaries around the support you will provide

Supporting your family does not necessarily mean saying “yes” to every request.

Clear financial boundaries can make it easier to support your family because you’ll better understand what you can afford without putting other important goals under unnecessary pressure.

For example, you might decide how much you are comfortable contributing toward major expenses each year, and review that amount as your financial circumstances change.

It is also worth having open conversations about expectations. Your adult children may not fully appreciate the impact that ongoing financial support could have on your longer-term plans.

Being clear about what you can and cannot provide helps everyone make more informed financial decisions and keeps your support from becoming an open-ended commitment.

2. Always be aware of your own financial future

It is natural to want to protect your children from financial hardship or help relatives through a difficult period.

It can help to see your financial future as part of your wider family picture. Maintaining an appropriate level of pension and investment savings means you are less likely to need financial support from your children in the future.

If you reach retirement with insufficient income or savings, your options may become more limited. You may need to work for longer than planned, reduce your standard of living or rely on financial assistance from others.

Planning ahead can help you avoid making those difficult choices later.

3. Loans could be more appropriate than gifts

Depending on the circumstances, you may decide that loans are more appropriate than gifts. This could allow you to help a child with important financial commitments while using repayments to replenish your wealth.

Formalising loan arrangements can also help avoid misunderstandings and potential family disagreements in the future. Clear expectations around the amount, repayment terms, and timescale can make the arrangement easier for everyone involved.

Of course, whether a loan is appropriate will depend on the individual circumstances and the nature of the support being provided. Sometimes a gift will be the simplest and most appropriate option.

4. Make the most of tax-efficient saving and investing options

If supporting your family is an important part of your financial plans, careful planning can help make your available wealth work harder.

Making use of pension tax relief, ISAs, annual gifting allowances, and other available tax opportunities may help you build your own financial security while retaining greater flexibility to support loved ones in the future.

Rather than making financial gifts on an ad hoc basis whenever a request arises, having a structured plan can help you balance your retirement needs with your desire to assist family members.

Planning ahead does not mean limiting your generosity. It can give you greater clarity about what you can comfortably afford to provide and potentially give you more options when your family needs help.

Supporting your family and planning for your future

For many parents, helping their children financially will always be a priority. That is unlikely to change simply because retirement is approaching.

The aim of financial planning is not to tell you how much you should give your family or where your priorities should lie. Instead, it helps you understand the consequences of your decisions so you can make choices that are right for you.

Supporting your children and maintaining your own financial security do not have to be competing priorities.

Get in touch

If the situation described here feels familiar and you would like to discuss how family support fits into your own financial plans, please get in touch.

You can call me on 07769 156250.

Please note

This blog is for information purposes only and does not constitute advice or a personalised recommendation. The information is intended only for individuals.

Please do not act based on anything you might read in this article. This blog is based on our understanding of current and proposed legislation, which may change.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a guide to future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

When investing, your capital may be at risk.