A £17 billion ($20.5 billion) “bank of mum and dad” is driving inequality between younger generations in the UK as the children of wealthy parents are handed substantially more than their peers, according to the Institute for Fiscal Studies.
(Bloomberg) — A £17 billion ($20.5 billion) “bank of mum and dad” is driving inequality between younger generations in the UK as the children of wealthy parents are handed substantially more than their peers, according to the Institute for Fiscal Studies.
University-educated homeowning parents transfer around six times more than renters, the think tank found.
White young adults in their 20s and early 30s are more than twice as likely to receive a gift than a black adult, and three times more likely than a Pakistani or Bangladeshi.
Analysis of official UK data found that parents gift around £14 billion a year to their children and informally loan a further £3 billion, often to help with the large deposits needed to get onto the housing ladder.
Around half is used to buy or improve a home, with property-related gifts averaging over £20,000 each.
Income inequality in the UK is already higher than the vast majority of member nations in the Organisation for Economic Cooperation and Development, though it has remained largely unchanged for 20 years.
However, far fewer Britons are able to buy a home as a young adult than in the past.
Of those born in the 1980s, just 36% were homeowners by the age of 30. The equivalent for those born a decade earlier was 56%.
“Substantial intergenerational transfers happen when people are in early adulthood and are buying their first home or getting married.
While these transfers are important assistance for some, they are very unequally spread,” Bee Boileau, a research economist and author of the report, said.
“As well as the benefits these transfers can provide, policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next.”
More than half of the value of transfers are made by the wealthiest fifth of adults – mostly homeowners living in London and the South East, where housing is most expensive, the IFS said.
Over an eight-year period, those in the highest-income fifth of young adults are over three times more likely to receive a transfer than those in the lowest-income fifth.
The amounts received by the highest-income fifth are 26 times bigger than those in the bottom 20%.
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