Bev Budsworth, MD from The Debt Advisor is one of a number of guests joining Winifred Robinson on “You and Yours” on BBC Radio 4 today to talk about how families are having to step in more frequently to financially support their extended families. According to a report by The Centre for Modern Family – family lending plugs the gap of household finances to the tune of £31billion. This is 3 times what the government is giving the banks to boost lending to small businesses.
The report concludes that rising household costs if the biggest pinch point for families which is only going to get worse when interest rates start to rise. Parents are being squeezed in the middle, providing support to their parents many of whom have failed to provide for their retirement as well as support for their children including those that “boomerang” back as they struggle to establish themselves independently.
The report identified that 1 in 5 parents with children under 18 had taken out some form of credit including loans, credit cards, overdrafts compared to 1 in 10 across the population. It appears that the children most likely to borrow from the Bank of Mum and Dad are single renters – 43% with 27% of boomerang kids likely to borrow.
It is not all bad news with 55% of families saying they were pleased to help their dependants or parents. Unsurprisingly at least a ¼ of these parents do not expect to get their money back.
Where it does get serious, is when parents bail out family who are already seriously deep in debt. Bev Budsworth adds, “Bailing out family members is often cited as a reason for people getting into debt. This includes taking out credit for family as well as acting as guarantor for personal and business loans”. Bev Budsworth adds, “as a mother of 3 young adults, 2 of whom are still at university, I very much know what it is like to be “the bank of Mum”. I do, however, believe that it is important to interrogate the reason for the support being needed. This includes making sure the kids work out a budget which for my kids means I want to know how much they are going to contribute by working part-time and what their outgoings are going to be. Keeping tabs on the credit they have taken out is also important. Students are unfortunately still offered credit to readily by banks wanting to ensnare them.”
Some of the heartbreaking stories I have recently encountered include:-
- Parents standing as guarantor for bank overdraft and loan for a business set up by their daughter. The business has failed and the parents now face losing their house to repay the guarantees.
- A mother owed in excess of £140,000 who has bailed out the son repeatedly.
- An elderly couple who ended up with in excess of £300k of debt most of which was incurred helping their children on repeated occasions. This couple had to contemplate an IVA which provided for most of the proceeds from the sale of their property going to settle sell their debt.
Bailing out family who are already seriously in debt can be a very big mistake. Bev Budsworth adds, “I do think there needs to be an element of pain suffered by family member who repeatedly runs up credit expecting the family to bail them out. An Individual Voluntary Arrangement can provide a very useful tool to help the indebted family member repay their debt over a 5 year period. An IVA means that you have to learn to budget and on a monthly basis make a contribution towards your debt. The debt remaining unpaid after 5 years in written off. Going through the process of repaying your debt and budgeting for a 5 year spell provides vital life lessons.
Bev Budsworth adds, “If you or a family member are struggling with debt issues, it is vital that you seek advice on the options. Creditors are prepared to consider deals such as full and final settlements which means that if a family member can help, their loan settles all the debt at a discount. Clearly creditors will only accept this if there is no better alternative”.
Bev heads up The Debt Advisor Ltd which incorporates The Business Debt Advisor based in Old Trafford. Spending time speaking to a clued up Debt Advisor could save you and your family so much not just money but also protecting vital relationships. We can be contacted on 0800 0851 825 or through our websites www.thedebtadvisor.co.uk and www.thebusinessdebtadvisor.co.uk.
There is also free help and advice available through a variety of debt charities. For more information, we recommend you visit,www.moneyadviceservice.org.uk