Should you really open the Bank of Mum and Dad?

Saving or investing to help your child when they reach adulthood is only half the battle. Ensuring that the money is used responsibly is also part of the challenge. But passing on lifetime money skills after your child leaves school might be the biggest struggle of all.

New research by investment service Wealthify found that nearly one in five (19 per cent) of adults in the UK — the equivalent of over 9mn people — receive a “lump sum” of savings from their parents when they reach adulthood, with the average amount coming in at £15,314.

Considering the average adult Isa for those aged under 25 is only £6,398 — for all ages, it’s £30,885 — this level of lump sum is a significant financial gift. The study found it is most likely to be spent on cars, followed by properties, investments, and savings accounts.

Parents creating this group of “nepo-investors” with a head start on financial success will do it with good intentions, particularly if they have earned the money to pass on through hard graft. So they will be pleased to hear that young adults who received money were not only less likely to worry about money daily but also more likely to talk about money with their parents and to believe they taught them the value of money when growing up.

But like the world of show business, just because you have talent doesn’t mean your children will too. Not all offspring respect the Bank of Mum and Dad or the sacrifices made to save the gifted sum. And receiving a lump sum doesn’t necessarily give young people better financial habits.

So if you’re not gifting your children money on their 18th birthday, don’t feel guilty. In fact, the Wealthify research reveals that young adults who didn’t receive a savings boost from their parents actually have more sensible daily financial habits than those who did.

“Nepo-investors” are more likely to make impulse purchases, use Buy Now, Pay Later schemes, avoid looking at their bank balance, and run up credit card debt. And, perhaps the final blow for parents wanting to downsize, they are more likely still to live at home.

Trying to make sense of the findings, Andy Russell, chief executive at Wealthify, says: “People can have complicated relationships with money whatever their background, whether they receive financial help from their parents or not.”

I refuse to believe new money habits can’t be set in early adulthood. Financial literacy is a life-long journey

It’s hardly their fault. Social media algorithms create big drivers to spend. Research by Halifax found that 50 per cent of children had asked parents to buy them something after seeing a social media “star” with it, with TikTok the most influential app in this regard. The young are also targets for businesses that tempt debt, such as Klarna and Zilch.

If you really wanted to set your kids up for a successful relationship with money, starting at age 18, you will have missed the boat by about 10 years. A study by Cambridge university in 2013 found the “habits of mind”, which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life.

Reading that led to me making my then seven-year-old daughter save her pocket money for eight weeks to buy a tiny toy penguin — an early lesson in delayed gratification. Nevertheless, I refuse to believe new money habits can’t be set in early adulthood. Financial literacy is a life-long journey.

Many teenagers actually want to learn about money and are frustrated that they didn’t receive enough personal finance lessons at school. But there’s a whole summer left for the Bank of Mum and Dad to help put that right before today’s 18-year-olds leave for university.

Perhaps encourage them to sign up for student discounts, such as Totum membership or a 16-25 Railcard, which gives one-third off the cost of train tickets. Research the huge number of brands that offer cheaper deals for students, using apps such as Unidays and Student Beans.

Or sign them up to Toogoodtogo.co.uk, where you can get surprise bags of food for a fraction of the full price at the end of the day, and help them find freebies via website Savethestudent.org.

The point at which a Junior Isa graduates to an adult Isa — on their 18th birthday — is a key opportunity to mentor your new adult. So next time they’re staring at their mobile phone, show them how to manage their Isa on an app and talk to them about growing investments and the magic of compound interest. You might learn something too. Alternatively, my own teenage daughters, mostly bored by their mother’s job, have managed to enjoy the 2017 documentary drama Becoming Warren Buffett.

Meanwhile, if you’re in possession of a lump sum but thinking of keeping it for yourself while you lay the groundwork for gifting it, there is plenty of comfort from the growing band of famous rich people who aren’t planning to pass money to their children. My favourite of these is Sting, who put it best, saying: “They’re not sitting there waiting for a handout at all, and I wouldn’t want to rob them of that adventure in life: to make your own living.”

Finding paid work over the summer is a game-changer, because money feels very different when you have to earn it yourself.

Nevertheless, parents might still feel like children “need” a financial leg-up. Among a long list of potential spending needs the biggest are university and house deposits.

If it’s a toss-up between helping with those, I’d choose the property deposit. When giving a sum to an 18-year-old might harm financial literacy, it feels wrong to rob them of the valuable life lessons from managing on a budget and controlling spending.

But the main reason is the sum likely to be needed 10 or more years later as a deposit. Over that period your retirement savings should have time to grow — by which stage you might be more certain of your capacity to gift money, or be worrying about planning for long-term care. Plus, the roulette element of student debt and the graduate tax — the fact they might not have to pay it back if they are lower earners — will be decided.

That’s a combination of factors that might change your mind entirely about graduating from just Mum and Dad to the Bank of Mum and Dad.

Moira O’Neill is a freelance money and investment writer. Email moira.o’neill@ft.com, X: @MoiraONeill, Instagram @MoiraOnMoney