5 min read

The value of talking to your family about big financial decisions

Talking openly about money has traditionally been a bit of a taboo among the stiff upper-lipped British – particularly the older generation. But times are changing, especially within families.

Father talking to his adult son

Part of the reason for this is that family members’ finances are becoming increasingly intertwined. This means financial decision-making involves more than just a single head of the household.

Why are people more willing to talk to their families about money?

OneFamily’s Intergenerational Lending report found a quarter of those it surveyed said different generations of their family provide each other with financial support. Primarily, it is still the older generations supporting children and grandchildren. Sons and daughters over the age of 18 were most likely to receive financial support from their parents or grandparents (they made up 46% of the total). While grandchildren were the next most likely (at 21%).

But it’s not a one-way street. Only half of parents and grandparents surveyed said they had never been financially supported by a family member. This suggests that financial help works the other way as well.

A leg up on the ladder

As family dynamics change in this way, money is now increasingly seen as an acceptable topic of conversation around the dinner table. OneFamily’s study found that 58% of people say their family talks openly about their finances, while 18% said they all know how much each other earns.

This is a good thing, because families might have to make any number of big financial decisions, the outcome of which can affect everyone. Whether to downsize or remortgage, how much support to give towards university fees, or how to tackle debt, all these issues need input from the whole family unit.

A big one is whether to help one or more adult children or grandchildren onto the property ladder. About 42% of cash gifts given by grandparents are used for this purpose, OneFamily’s research revealed. Other popular reasons to give financial support are to help with education or training, monthly bills, and even holidays. Perhaps the biggest question is not ‘should we help?’ but ‘where will we get the money?’

Where does the money come from?

It’s natural to want to help family members, and grandparents in particular tend to be very generous. OneFamily’s research found that one in ten have given an adult grandchild a cash sum of £15,000 on average.

The majority said they gave this money as a gift with no strings attached. They also said it doesn’t require them to sacrifice their own financial wellbeing. About 40% fund these cash gifts from their own savings. But an increasing number of older homeowners are cashing in their property wealth to help younger family members using products like lifetime mortgages.

The Equity Release Council reports that equity release lending grew by a record 77% between 2015 and 2016. This unprecedented yearly increase that shows the growing popularity of this type of borrowing among homeowners.

The impacts of financial decision making can last more than a lifetime

Equity release is a big decision which should only be taken after in-depth conversations within the family, and of course after taking professional financial advice. The reason for this is that, as with any form of equity release, it can have repercussions down the generations.

If a retired couple takes on a lifetime mortgage, the bank can sell their home after they die to reclaim what they owe on the mortgage. It means the house can no longer be passed on to their children as an inheritance, only whatever is left over after it is sold.

Should the value of the property fall due to changes in the market and there isn’t enough money to cover the debt once it is sold, family members can end up responsible for the shortfall. Many lifetime mortgages now include a ‘no negative equity guarantee’ to prevent this, but not all. So it’s important to check this with your financial adviser.

As you can see, this is a decision which can affect the whole family, and should not be taken lightly. And that’s why it’s more important than ever to talk to your family before making such a big financial decision.

It’s good to talk

When you’re a family, you’re a team. It can be helpful to think about pooling your resources to improve the financial situation of everyone on that team. That’s not to say younger relatives should expect to be handed everything on a plate. But it does mean families should be willing to talk openly about money matters. Together, you should be much better equipped to find solutions to those big financial challenges.

 

Written by Hannah Smith – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.