The Bank of Mum and Dad as young adults’ social insurance

MOST YOUNG people these days need a boost to get on the property ladder. In Britain more than 60% of homebuyers under 35 get financial help from their parents, according to Legal & General, a British insurer. Such assistance averaged £24,100 ($30,000) last year, up from £17,500 in 2016. The so-called Bank of Mum and Dad is now, in effect, the 11th-largest mortgage lender in the country. The same applies elsewhere. In America, parents are the seventh-biggest lender, according to another study.

But for many young adults, the financial support does not end there. In a new paper, researchers at the University of Copenhagen combined customer data from Danske Bank, Denmark’s biggest lender, with government records about where these customers live, work and went to school, and how much they earn. With the resulting database, the researchers tried to understand how much young Danes, aged 20 to 39, are supported financially by their friends and family.

Unsurprisingly, parents are by far the biggest backers. Young Danish adults receive a net transfer of almost $65 per month from their parents, on average (parents give an average of around $140 and receive an average of $75 from their children). But when those who neither receive money from their parents nor give them any are excluded from the sample, the average net amount rises to over $100 per month. One young adult out of every 25 in the sample receives more than $1,000 per month. (The paper reports transfers in dollars, not Danish kroner.)

Young people rely on their parents the most when their income falls. Those on the middle rung of the earnings ladder receive around $50 a month net from their parents on average. When an individual falls from the median earnings bracket to the bottom 5% of earners, that amount increases by over $100. Conversely, those who move into the top 5% of earners receive $30 a month less. And parents provide more than just financial support. The researchers found that falling into the bottom income bracket increases the chance that a young person will live with their parents by 4% (again, compared with the median earner: see chart). Counter-intuitively, young Danish people making big bucks are more likely than some of their lesser-paid peers to move in with their parents. But the authors reckon that this is evidence that rich young people host their parents, rather than the other way round.

Not surprisingly, parents tend to be more generous than others in a person’s social circle. Siblings, grandparents, school friends and colleagues give on average less than $20 a month combined, gross, and almost nothing net. Nor do they help out much more when things get tough. Falling from the median income bracket into the bottom one will only elicit an extra $5 a month from siblings, on average.

These results may not be representative of experiences elsewhere. Denmark’s generous social-insurance policies already offer a relatively high level of income support. Parents in countries where the state provides less help may be even more generous. The findings are nevertheless clear: when young people struggle for money, they are likelier to turn to the bank (and bedrooms) of Mum and Dad than anywhere else.